Lower Manhattan is experiencing a significant shift as office tenants affected by a wave of residential conversions choose to remain in the area rather than relocate to other parts of New York City. According to a report from JLL, these moves have contributed to a surge in leasing activity downtown, even as the overall supply of office space declines.
The trend comes as more than 5.5 million square feet of downtown office space has been converted into housing since 2020, with an additional 5.8 million square feet potentially facing similar changes in the future. Despite this reduction in available offices, most tenants are opting to move into other Lower Manhattan properties instead of heading to Midtown or Brooklyn.
Michael Lefkowitz, an attorney at Rosenberg & Estis, commented on the phenomenon: “The tenants that are or were in the buildings that are getting converted have become an important part of the current leasing velocity.”
The increase in conversions is linked to New York’s 467m tax incentive program, which provides property tax breaks for owners who turn outdated office buildings into apartments. The program sets deadlines for developers—projects must begin by 2031 and finish by 2039—with greater benefits offered for earlier starts. This has created urgency among developers and resulted in some tenants being required to leave on short notice.
As available space tightens due to more planned conversions, professional service firms such as law offices and engineering companies are securing Class A office spaces nearby. For example, engineering firm Arup and law firm Lewis Brisbois Bisgaard & Smith both relocated to Union Investment’s 140 Broadway after leaving 77 Water Street, which Vanbarton Group intends to convert into approximately 650 rental units. Rental rates at 140 Broadway range from $65 to $79 per square foot compared with $46 to $56 at their former location.
John Wheeler from JLL noted that relocating within Lower Manhattan has not meant compromising on quality: “That’s a good example where they traded up in the quality of the building,” he said.
However, concerns remain among tenants about moving into properties that might also be converted in the future. Wheeler explained: “You’re typically not looking to jump from the frying pan into the fire. Part of their choice is to be comfortable that they’re not gonna just move in and be recreating the same cycle again.”
