Big Apple office conversions seen cutting inventory by nearly 4%

Office conversions to apartments are sweeping the country, as my colleague Emily Davis reported on Thursday.According to CBRE Group data, 23.3 million square feet in the 58 largest US markets will be converted or demolished by the end of 2025, versus 12.7 million square feet of new office construction.But in the Big Apple, the gap between newly office creation and offices lost to conversion is even more stark, Realty Check found.A different, recent CBRE report said that if every conversion in New York City “currently underway, proposed and rumored as of Q4 2024” were to be completed, it would remove about 16.5 million square feet from Manhattan’s total inventory — a 3.9% reduction.The phenomenon makes the office market look stronger by reducing vacancy rates.

It’s  good news for owners of obsolete buildings who can afford the high costs of conversions.It’s bad news for tenants as the diminished  supply means higher rents overall.But our survey of the situation clearly shows which trend has the momentum.The conversion tsunami  has migrated from the Wall Street area to swamp Midtown.Construction will start this year at 5 Times Square, which RXR, SL Green, and Apollo Global Management will turn mostly into 1,250 rental apartments, a project facilitated by city zoning changes.

The tower — one of the four, brightly-lit projects that went up 25 years ago and defined the “new” Times Square — was once home to Ernst & Young but is now mostly empty.Metro Loft Developers and David Werner Real Estate Investors are going full-steam on converting the former Pfizer headquarters at Third  Avenue and East 42nd Street into 1,602 apartments.Downtown, GFP Real Estate and Metro Loft are putting the finishing touches on 25 Water St., where tenants have begun moving into 1,230 rental apartments.These and many other conversions are completed, well underway or set to begin imminently.In comparison, precious little is underway in new office construction (exc...