New York’s Office-to-Residential Conversions at Briskest Pace in 17 Years

You’d have to go back to antiquity to find a similar flood of conversions.

There’s a new wave of office-to-residential adaptive reuse in New York City, and it might be the biggest one yet.

Office-to-residential conversion starts reached 3.3 million square feet in 2024, more than double the 1.6 million square feet in starts recorded in 2023, according to a new report from Cushman & Wakefield.

That momentum has continued into 2025, with 4.1 million square feet of conversions already commenced through August, surpassing last year’s total in just eight months, the report said. An additional 8.8 million square feet of projects are proposed for “post-2025,” marking the most active conversion period since 2008, according to C&W.

What’s caused conversions to pick up? Well, they seem to be the go-to — and maybe only — strategy for office owners looking to get out from under declining building values and to capitalize on both a pressing affordable housing shortage and changing government policies.

“The housing challenges certainly present an opportunity. But, from the office perspective, we’ve seen vacancies rise sharply post-pandemic, and that has put some pressure on some buildings in the market,” Reed Hatcher, senior research manager at C&W, told Commercial Observer.

“But what’s really changed here in the last couple of years has been the policy support,” Hatcher added. “Early on, it may have been more challenging for some of these conversions to pencil out, but with the introduction of tax incentives and rezoning initiatives, that has really expanded the universe of what’s possible in terms of conversions.”

Rising office vacancy rates in Manhattan are certainly causing conversions to pick up.

By the end of August, Manhattan’s office vacancy rate was 22.3 percent, more than double the pre-pandemic five-year quarterly average of 9.4 percent, according to C&W’s report.

It’s not really Class A office space being left on the market, though, as tenants are increasingly looking for high-quality, amenity-filled workspaces. It’s the older, lower-quality Class B space that’s keeping the vacancy rate so high, Victor Rodriguez, CoStar’s senior director of analytics in New York City, told CO in late September.

As a result, owners are “increasingly motivated” to reposition underperforming assets — either upgraded into higher-quality office space or converted into a residential development. Thus the uptick in conversions. In fact, if all proposed conversion projects advance, Manhattan’s vacancy rate would decrease from 22.3 percent to 21.5 percent, with conversion-happy Lower Manhattan seeing a larger drop to 20.5 percent, C&W said.

In addition, office inventory across Manhattan overall dropped from 466.1 million square feet in the second quarter of 2025 to 449.4 million square feet in the third quarter, according to a recent report from Savills. A lot of that space taken off the market could be headed for conversions.

“I certainly think the conversion activity helps, but, at the same time, they’re not a cure-all for the high vacancy in the city,” Hatcher said. “So even if every proposed project that we show in the report — around 8.8 million square feet — were completed, the overall drop in vacancy would be fairly modest. It’s certainly a contributor to bringing vacancies down, but it’s not going to be a magic bullet by any means.”

Still, recent policy initiatives in New York City are keeping the conversions coming.

In 2023, Mayor Eric Adams introduced the Office Conversion Accelerator program, which is intended to simplify and speed up the process of conversions, as well as provide owners with a point of contact in city government to navigate zoning and permitting issues regarding their projects.

Then, last year, the New York State Legislature created the 467-m tax incentive program, which exempts conversions of nonresidential buildings from property taxes for 25 to 35 years.

On top of that, Adams’s Midtown South mixed-use plan — which the New York City Council voted to adopt in August — has the potential to create 9,700 new apartments across 42 blocks through ground-up development and office-to-residential conversions.

“The challenge has been the financial feasibility involved in some of these [projects], not even factoring in some of the physical challenges,” Hatcher said. “But [these policies] really open up the universe of buildings that qualify for conversion in terms of the zoning reforms included in some of those.”

There’s been a slight change in where those conversion projects are happening, though.

Lower Manhattan, specifically the Financial District, dominated earlier waves of projects, but Midtown now accounts for more than half of post-2020 conversions, according to C&W. In addition, Class A office assets now make up more than one-third of conversions and a majority of those planned, the report said.

Why the switch-up from Lower Manhattan to Midtown? Partly because most of those conversion projects downtown have already been completed, including 25 Water Street, 160 Water Street and One Wall Street. And it’s leaving room for lots of activity in Midtown.

One of the major Midtown projects is MetroLoft Management and David Werner’s conversion of the former Pfizer headquarters at 219 and 235 East 42nd Street into 1,602 rental apartments across two buildings, representing the largest U.S. office-to-residential conversion project to date.

Then there’s Apollo Global Management, SL Green Realty and RXR’s plan to turn the 38-story office tower at 5 Times Square into a mixed-use development with as many as 1,250 housing units, 313 of which will be permanently affordable.

And, just in the past few months, Rudin filed plans to convert the 21-story office building at 845 Third Avenue into a residential building with 411 apartments, and Vanbarton Group bought the 27-story office tower at 6 East 43rd Street for about $140 million to turn it into 450 to 500 rentals.

That momentum is expected to continue down the line, Hatcher said, as housing demand and policies “expand the universe of what’s able to be converted.” 

Isabelle Durso can be reached at idurso@commercialobserver.com.