We continue to hear about a commercial office recovery. Yes, it is true, but that could be misleading. While reports suggest improvement, much of the office market remains distressed, with properties selling at steep discounts—due to the lasting impact of remote work. High-end office spaces are doing good, but the real transformation is happening elsewhere: office-to-residential conversions.

A Surge in Conversions – Despite high interest rates, developers are moving forward with office-to-residential projects at an unprecedented pace. Manhattan leads the way, with a significant number of conversions in progress. Most of these units will be rentals rather than condos, addressing the city’s ongoing demand for housing.

NYC Rents on the Rise – With mortgage rates stuck around 7% and inflation pressures growing, Manhattan rents are climbing again, potentially reaching new highs this year. The influx of newly converted apartments comes at a crucial time, helping to expand rental inventory. While many of these units will be in the luxury segment, the overall increase in supply may contribute to market balance.

What This Means for Investors and Buyers – Falling commercial office values are lowering acquisition costs for developers, making conversions more financially viable despite rising construction expenses. For buyers and investors, this shift presents both risks and opportunities. The real estate landscape is evolving, and those who understand these trends will be best positioned to capitalize on them.

(source: millersamuel.com, picture: Joe Bl)