By: Meyer Wolfsheim

The trend of transforming aging office towers into housing is sweeping cities across the country—but nowhere is the shift more dramatic than in New York City. According to data from CBRE Group, while 23.3 million square feet of office space will be converted or demolished in the 58 largest U.S. markets by the end of 2025, only 12.7 million square feet of new office buildings will rise in their place. NY Post reported.

In Manhattan, the disparity is even more pronounced. A recent CBRE report revealed that if all conversions currently underway, proposed, or rumored as of late 2024 are completed, the city could lose around 16.5 million square feet of office space—roughly 3.9% of Manhattan’s total inventory. This shrinkage could ease vacancy rates in the short term but comes with significant long-term implications for commercial real estate. NY Post reported.

The shift benefits landlords of older, outdated buildings who can invest in high-cost residential conversions. But for tenants still in the market for office space, the reduced supply could mean climbing rental prices. While conversions paint a rosier picture of market health, the real story is one of radical transformation and an uneven future for new office construction.

In Midtown Manhattan, once the bastion of American corporate power, the wave of conversions is rapidly overtaking ground once reserved for office high-rises. A prime example is 5 Times Square, formerly home to Ernst & Young. Now largely empty, the tower will soon become 1,250 rental apartments thanks to a partnership between RXR, SL Green, and Apollo Global Management, aided by recent zoning changes. NY Post reported.

Other major projects include the former Pfizer headquarters on Third Avenue, which Metro Loft Developers and David Werner Real Estate Investors are converting into 1,602 rental units. Downtown, 25 Water Street—formerly an office tower—has already welcomed its first wave of residential tenants into 1,230 brand-new apartments.

Meanwhile, efforts to build new office buildings are either sputtering or stalled entirely. The JPMorgan Chase headquarters, nearing completion, is one of the rare exceptions, adding 2.5 million square feet to the market. NY Post reported.

Beyond that, new office developments are stuck in limbo. Related Companies’ 70 Hudson Yards, backed by Deloitte as its anchor tenant, is the only sure bet on the immediate horizon. Projects like BXP’s 343 Madison Avenue, which aims to create 950,000 square feet of new office space, haven’t yet broken ground and lack signed tenants.

Another long-planned venture, 3 Hudson Boulevard—a joint project between BXP and Moinian—faces an $80 million loan default, according to BizNow. Even further off is a proposed 1.8 million square-foot tower from Vornado, Rudin, and billionaire Ken Griffin, which remains under review in the city’s land-use process. NY Post reported.

Perhaps most ambitious of all is 175 Park Avenue, a supertall development planned for the Grand Hyatt Hotel site. But RXR and TF Cornerstone have yet to secure the $4.84 billion in federal loans needed to break ground.

CBRE’s broader survey paints a clear picture: roughly 15.5 million square feet of office space has already been removed from circulation through conversions, while less than 2.5 million square feet of new office space is set to replace it. In the battle for Manhattan real estate, apartments are winning by a landslide. NY Post reported.