Market Trend & Conversion Overview - Manhattan sees a trend of converting 12.4 million square feet of old offices into housing, equivalent to about four Empire State buildings [2] - New York's office supply has already dropped nearly 2% since 2023, with a potential further decrease of 7% if all proposed projects are realized [3] - This additional 7% represents more than 21 million square feet of office space [4] Location & Driving Factors - Half of the office conversions are happening in Midtown Manhattan [2] - High interest rates and remote work have dragged down Midtown office values, making conversions attractive [2] - Before the pandemic, conversions were primarily downtown due to cheaper buildings and zoning incentives [2] Financials & Incentives - Similar office conversion units in the area project monthly rents ranging from $4,000 for a studio to $20,000 for a 3-bedroom [1] - New York offers tax breaks like 467 million for up to 35 years as incentives for conversions [4] Challenges & Considerations - Building interiors need redesign, including wall removal, window replacement, and plumbing relaying, making conversions complex and costly [5] - Not every building is suitable for conversion into apartments [4]

Core Insights - The U.S. office market has reached an inflection point, with office conversions and demolitions surpassing new construction for the first time in at least 25 years [1][2] Market Dynamics - More office space is being removed than added, leading to a reduction in the overall office footprint [2] - In the largest 58 U.S. markets, 23.3 million square feet of office space is set for demolition or conversion, while only 12.7 million square feet is projected to be completed in new construction [3] Vacancy and Demand Trends - The net reduction in office space is expected to lower the vacancy rate, which currently stands at around 19%, benefiting building owners [4] - There is a growing trend of employers requiring staff to return to the office full-time, contributing to a tightening job market [5] Absorption and Leasing Activity - Net absorption has been positive for the past four quarters after a previous six-quarter decline, with office-leasing activity increasing by 18% in Q1 compared to the previous year [6] Rental Market Outlook - With reduced supply and increasing demand, office rents are expected to stabilize, particularly in prime locations and Class A spaces [7] Conversion and Development Trends - Developers are preparing an additional 85 million square feet of office space for conversion in the coming years, with historical conversions yielding about 170 units per project [9] - The conversion trend is seen as beneficial for commercial real estate, although it faces challenges such as dwindling ideal buildings for conversion and high construction costs [10]