Office users displaced by the wave of conversions are largely staying in the city center, Crain’s reported. According to a JLL report, the activity is driving an increase in rentals even as the area’s overall office stock shrinks.
Overall, rentals in the area this year are already more than double last year’s total. Available space is shrinking as more homes are scheduled for a residential makeover.
Since 2020, more than 5.5 million square meters of office space in the city center has been converted into housing; According to JLL, another 5.8 million square meters could suffer the same fate. But instead of leaving for Midtown or Brooklyn, most tenants are simply jumping to other buildings in Lower Manhattan.
“The tenants who live or were in the buildings being renovated have become an important part of the current rental rate,” Rosenberg & Estis attorney Michael Lefkowitz told the publication.
The glut of renovations comes amid New York’s $467 million tax incentive program, which offers property tax breaks to owners who convert aging office buildings into apartments. The program’s deadlines — starting in 2031, ending in 2039, greater benefits for earlier starts — create pressure for developers to act quickly, forcing tenants to vacate without notice.
The result is a game of musical chairs in which law firms, engineers and other professional tenants claim the remaining Class A space in the neighborhood.
Engineering firm Arup and law firm Lewis Brisbois Bisgaard & Smith both landed at Union Investment’s 140 Broadway after being evicted from 77 Water Street, where Vanbarton Group plans to build 650 rental units. 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 did not mean trading down. “That’s a good example of how they’ve improved the quality of the building,” he said.
Still, tenants are reluctant to move into buildings that could suffer the same fate.
“You don’t normally plan to jump from the frying pan into the fire,” Wheeler told Crain’s. “Part of their choice is to feel comfortable that they’re not just going in and recreating the same cycle.”
— Holden Walter Warner
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