A few factors are weighing on the residential side of the real estate market: Inflation, retreats in the value of equities and cryptocurrency, mortgage rates above 5%, rising supply, and the war in Ukraine have all impacted consumer sentiment. Manhattan prices have stabilized as buyers with borderline credentials have retreated. But with rental prices at all-time highs and the sales market cooling I am still seeing buyers aiming to secure a deal and we’re encountering fewer bidding wars relative to 2021 and Q1 of 2022. One underlying factor is the awareness that real estate acts as a natural hedge against inflation – as home prices rise over time it lowers the loan-to-value of any mortgage debt. Are you on the move? Please feel free to reach out to discuss the latest in your desired submarket or sign up for my Webinar, Decoding the Market, here!
High Office Vacancy in Midtown Manhattan
The world is returning to a semblance of our pre-pandemic routines but one shift is particularly pronounced while walking through Midtown: significantly fewer people. The expectations around days in the office are leaner and the commute at large was significantly curtailed for many office workers. Where will this leave Midtown Manhattan in the face of the work-from-home expectations by office workers and pandemic-driven vacancies?
New York office occupancy is still below 40% of prepandemic levels, according to keycard swipes tracked by security company Kastle Systems (WSJ). While demand has surged for new and attractive buildings it has waned significantly for older ones from the 1960’s with limited light.
Converting Office Spaces Into Residential Apartments?
City officials and real estate developers are starting to look for ways to see if Midtown can become something else – with an office-to-residential conversion being of top preference. Interestingly, this is not the first time NYC would undergo such a conversion.
As some of us remember, after the 9/11 terrorist attack that hit in the heart of Lower Manhattan, regulatory changes and subsidies created to help the Financial District recover resulted in thousands of apartments. Many of these residences were carved out of vintage office towers.
Now, the real estate industry is pushing for a similar fate for Midtown Manhattan. Gov. Kathy Hochul and Mayor Eric Adams seem to want to help make this a reality. In April, EQ reported that Governor Hochul’s latest budget covers a proposal to revise the state’s dwelling laws to be more flexible with regards to floor area, light, and air requirements for office building conversions south of 60th Street.
Mayor Adams appears to share the Governor’s view on transforming Midtown offices into residences. He said “Everything is on the table. We changed the zoning and changed the ways we could do housing in office spaces, and I think we should be open to doing so.” But with larger floorplates in Midtown and dated construction that doesn’t convert as easily as their financial district counterparts this will still be a tough web to untangle. I’ll be monitoring this conversation and others for all of your real estate needs. Touch base soon 646.939.7375.
Best, Corey Cohen
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