Zoning changes, high vacancies spurring office conversions in New York City

Changes in zoning regulations and persistent office vacancies are boosting office-to-residential conversion projects in New York City.

Annual conversions rose from 1.6 million sf in 2023 to 3.3 million sf in 2024, according to a report from Cushman & Wakefield. New York is experiencing historically high office vacancy rates that peaked at 23.8% in June. 

Vacancies decreased to 22.3% in August, but that is more than double the pre-pandemic five-year quarterly average of 9.4%. Office valuations have fallen from a peak of $1,037 per sf in 2019 to $567 per sf this year.

Regulatory reforms including the Office Conversion Accelerator Program, launched in 2023, helped reduce administrative hurdles, while a 2024 tax incentive proved transformational by making more projects financially viable, the report says. 

Recently, the City of Yes zoning reforms, lifting of the FAR cap, and approval of the Midtown South Mixed-Use Plan, have broadened eligibility, expanding the ranks of viable candidates for conversion.

An additional 8.8 million sf of conversion projects have been proposed. “As elevated office vacancies intersect with supportive policy and housing demand, conversions are positioned to remain a central feature of New York’s evolving real estate landscape,” the report says.