Report: Office-to-Residential Conversions in Midtown Manhattan are Reaching an Unprecedented Level

NEW YORK—New York City is entering a new era of office-to-residential conversions according to a newly released report by commercial brokerage firm CBRE. Conversions in Midtown Manhattan are taking place at an unprecedented rate, as developers acquire underperforming assets in the primary business district as well as in peripheral areas.

The report stated that the conversion trend is not limited to Midtown as the pipeline for office-to-residential conversions in the coming years will involve projects from Battery Park to Central Park.

With about 8.3 million square feet of office-to-residential conversions currently planned or actively being converted, New York City compares favorably to national markets in terms of volume, CBRE officials stated.

According to the CBRE report, Manhattan’s supply of properties undergoing conversions have a median age of 68 years, with 60% of the square footage located in Midtown. More than 50% of the square footage currently being converted in Manhattan was built after 1961.

“While office-to-residential conversions will not fix Manhattan’s oversupply of office space, adapting some of the older product will certainly help in making the remaining office space more attractive,” said CBRE’s Doug Middleton. “In addition, it will provide a boost in the city’s dire shortage of residential housing and inject thousands of new residents in areas traditionally reserved for office use.”

An analysis by CBRE found that if every conversion currently underway, proposed or rumored to take place as of the fourth quarter of 2024 was completed, it would remove 16.5 million square feet of existing office stock and 3.5 million square feet of available space, resulting in a 200-basis-point drop in the Manhattan office availability rate of 18.0%.

“Manhattan's office-to-residential conversions represent a steady transformation of revitalizing urban spaces while addressing housing needs,” said Middleton. “These conversions enhance neighborhood vibrancy as well as increase the competitiveness of remaining office assets.”

The CBRE report highlighted several hurdles that owners must navigate, including long-term leases and other existing tenant commitments, before a property can be conversion-ready. That said, regulatory changes, including the new high-density zoning districts created by “City of Yes" and the pending Midtown South Mixed-Use plan aimed to expand conversion opportunities, will likely provide a further catalyst for a steady stream of commercial-to-residential projects over the next few years, according to the CBRE report.

The Midtown South Mixed-Use plan, which could be approved by the New York City Council by the end of this year, would make available 42 blocks of former and struggling manufacturing and office space for residential conversion.

“Even as leasing improves, several office properties may struggle to retain or attract tenants unless they pursue a costly repositioning. The improved leasing landscape has also not been enough to reverse a trend of falling occupancy that continues to hollow out lower-quality office assets,” the report stated. “Conversions have the potential to prevent these assets from becoming stranded and ensure that the surrounding neighborhoods retain the vibrancy that makes New York a ‘Super City,’ as defined by CBRE's Shaping Tomorrow's Cities report.”