Downtown May See Conversions as Demand, Rents Slide

NEW YORK CITY-Property owners of class B/C office space Downtown may convert into residential to stay afloat amidst a 13.6% area vacancy rate, said Cushman & Wakefield research analysts during a recent conference call. Transactions are struggling to close at even 10% to 15% below already deflated asking rents. And class A vacancies have risen nearly 13% over the past 12 months leaving an even less attractive market for B/C office deals.

Early last September, Downtown’s class A vacancy rate sat at 3.7%. That figure is now 16.3% and shows little sign of abating soon, as leasing activity has slowed across all sectors considerably. The Cushman & Wakefield annual office retrospective shows 12.7 million sf of total space available Downtown.

Despite an unresponsive Downtown office market, the demand for residential space in Manhattan continues to increase. Nearly one quarter of all multifamily space in Manhattan was constructed after 1990, according a recent Marcus & Millichap Manhattan multifamily report on GlobeSt.com, and those rents continue to escalate.