Lower Manhattan’s residential conversion boom isn’t driving office tenants out… it’s locking them in.
Office users displaced by the wave of conversions are largely staying downtown, Crain’s reported. The activity is fueling a leasing surge even as the neighborhood’s total office stock shrinks, according to a JLL report.
Overall, leasing in the area this year is already more than twice last year’s total. Available space is tightening as more properties are slated for residential makeovers.
Since 2020, more than 5.5 million square feet of downtown office space has been converted to housing; another 5.8 million square feet could face the same fate, according to JLL. Yet rather than decamping for Midtown or Brooklyn, most tenants are simply hopping to other Lower Manhattan buildings.
“The tenants that are or were in the buildings that are getting converted have become an important part of the current leasing velocity,” Rosenberg & Estis attorney Michael Lefkowitz told the publication.
The rash of conversions stems from New York’s 467m tax incentive program, which offers property tax breaks to owners converting outdated office buildings into apartments. The program’s deadlines — start by 2031, finish by 2039, steeper benefits for earlier starts — create pressure for developers to move fast, forcing tenants to vacate with little notice.
The result is a game of musical chairs in which law firms, engineers and other professional tenants are snapping up remaining Class A space nearby.
Engineering firm Arup and law firm Lewis Brisbois Bisgaard & Smith both landed at Union Investment’s 140 Broadway after being displaced from 77 Water Street, which Vanbarton Group plans to turn into 650 rentals. Rents there range from $65 to $79 per square foot, compared to $46 to $56 at 77 Water, per CoStar.
JLL’s John Wheeler said the shuffle hasn’t meant trading down. “That’s a good example where they traded up in the quality of the building,” he said.
Still, tenants are wary of moving into buildings that could face the same conversion fate.
“You’re typically not looking to jump from the frying pan into the fire,” Wheeler told Crain’s. “Part of their choice is to be comfortable that they’re not gonna just move in and be recreating the same cycle again.”
— Holden Walter-Warner
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