Trends to Watch: What Other Cities
Can Learn From New York City’s
Conversion Boom
As major U.S. cities experience high commercial real estate vacancy rates and severe housing shortages, developers have an opportunity to invest in and convert aging buildings and stranded assets.
Editor’s Note: This blog is part of our Design Forecast blog series, looking at what’s next in 2025 and beyond.
As major U.S. cities continue to experience persistently high commercial real estate vacancy rates and severe housing shortages, developers have an opportunity to invest in and convert aging buildings and stranded assets into affordable and market-rate housing, senior living, education facilities, hotels, life science centers, health clinics, critical facilities, and more.
We sat down with Robert Fuller, a global leader of Gensler’s Residential practice, to discuss why these trends are likely to continue, and how conversions can help address the housing crisis in our cities.
What’s driving the conditions for the conversion boom?
Robert Fuller: What’s driving the conversion boom is primarily the continued, stubbornly high vacancy rates in office buildings, combined with a shortage of housing in many of our cities. Additionally, more and more people have begun to realize that single-use districts are not necessarily a healthy way to plan our cities — or to drive value in real estate. So, making these neighborhoods more diverse by putting residential and other uses where only commercial existed previously is something that a lot of people are seeing as a positive development for the long-term health and resiliency of our cities.
The conversion boom is particularly pronounced here in New York. Our financial district in lower Manhattan was a purely commercial district until relatively recently. Adventurous developers — backed by tax incentives specifically designed to help catalyze development — started doing conversions downtown 20-25 years ago. It’s taken a while, but it’s a much different place now, with much more 24/7 activity and a much more diverse mix of uses.
There’s still a lot of demand in Lower Manhattan, but what I’m most excited about is seeing conversions take hold in our Midtown commercial districts as well. Recent changes to New York City’s zoning regulations will make conversions easier in more neighborhoods by making more buildings eligible for conversion and will help capitalize on the momentum that’s built up over the last few years.
How are office-to-residential conversions helping to address the housing crisis?
One of the factors that is intensifying the housing crisis is lack of supply. Office-to-residential conversions — as part of a larger policy aimed at producing more housing — have the potential to be an important strategy in terms of increasing that supply, while also taking the surplus of underutilized office space off the market.
When you combine supply-side gains with local and state-level polices creating financial incentives for building dedicated income-restricted units, conversions can help push affordability in the right direction. The key is to figure out smart ways to make these conversions work from both a technical and financial standpoint, and we think that we’re only going to see more momentum for this.
In New York City alone, we have over 5,000 units in the pipeline, strictly through conversion projects. Taking advantage of the recently adopted state tax incentives, as many as 25% of those will likely end up being affordable units. Our teams take pride knowing we’re trying to help solve this challenge.
Why are “Class B” office buildings good candidates for conversions?
A lot of the Class B and C office buildings are seeing the highest levels of vacancy and have arguably outlived their useful lives as office buildings. No matter how much money you pour into them, or how you upgrade or amenitize them, they simply don’t have the bones of the newer Class A products that they’re competing with.
Class A is the best of the best — these are newer office products that have the infrastructure to support a modern workplace. Class B and C buildings are typically older buildings; they don’t have the same mechanical or technical infrastructure, they don’t have the same amount of natural light, they have lower floor-to-floor heights, and they may have tighter column grids that don’t have the same planning flexibility.
Repositioning these buildings to make them desirable for commercial tenants and compliant with current and future energy codes requires significant investment one way or another. We can certainly make these repositionings work for clients dedicated to remaining in the commercial office market, but we are also seeing many clients entertaining conversions as a new approach for returning these assets to productive use.
Conversions make a lot of sense for developers — especially those who were struggling to rent these buildings even before the pandemic. It’s all been exacerbated by the high vacancy rates we’re seeing.
What other “stranded assets” are candidates for conversions?
In suburban markets, we’re seeing a lot of older malls that are candidates for becoming more mixed-use, lifestyle-oriented developments. We know the struggles that some traditional retail centers have had, so we see that as a great opportunity. Those retail centers are usually really well-located, with access to transportation, so they are in some ways perfect nodes for mixed-use developments.
We’ve also seen a lot of older warehouse and manufacturing buildings that have outlived those uses. These buildings sometimes make for really great adaptive reuse candidates, whether it’s for commercial, residential, or other uses. For example, our team recently converted 345 Park Avenue South, which was originally a manufacturing building that had been used for a long time as an office building here in New York City, into a vertical life sciences campus. We’ve now been able to once again extend its useful life for another generation by making it an appealing destination for businesses in the life sciences, healthcare, and biotech industries.
What is the value in rescuing these stranded assets for a second life for designers, clients, and developers?
We think there’s value on a lot of levels when it comes to adaptively reusing these existing structures. First and foremost, from a resiliency standpoint, it’s not particularly sustainable to demolish and build new. The amount of embodied carbon that can be saved by reutilizing an existing steel or concrete structure is significant.
It’s also not always the most practical approach in terms of project delivery and speed to market. Speed to market is a huge driver of these conversions. You can typically adapt an old office building into residential much faster than you can demolish and start ground up, especially here in New York City, where construction logistics can be so challenging. The faster you can begin to lease/occupy a building, the faster you can stabilize a building (financially). That is invaluable to developers and their capital partners.
NYC is a very mature market, and there are relatively few unbuilt development parcels left, and so being able to adaptively reuse an existing building can be much more feasible at times than building new.
Offices and residential spaces are configured differently. When converting assets into residential real estate, how do we redesign for living versus working?
We hear about the challenges of converting these buildings all the time — the floor plates are too deep, the column spacing isn’t right, or the facade doesn’t look like a residential building. Those are all valid concerns, but it’s important to not just fixate on the obstacles. You have to look at every constraint as an opportunity to do something unique and different. Think of it as an excuse to break away from the traditional, cookie-cutter approach to new, ground-up residential development, where an emphasis is typically placed on repetition and sameness.
There’s no one-size-fits-all with conversions. You really have to closely analyze the building and get very creative about how you plan, maximize efficiency, get the right balance of unit depth to width, and deal with what are often less than ideal floor plates. From a designer’s standpoint, those challenges are great opportunities to do something unique and different each time and create a product that is distinctive and desirable to prospective tenants.
What is something that surprised you about the experience of converting Pearl House in New York or Franklin Tower in Philadelphia?
When we were first evaluating Pearl House (160 Water Street), our first instinct was that it wasn’t going to be a great conversion; the floor plate was too big and too deep. But we were able to work with our client to come up with a creative solution where we carved floor area out of the middle of the floor plate to make that floor plan work. We then were able to gain value by basically relocating the floor area that was carved out to the top of the building in the form of a new five-story overbuild.
For Franklin Tower in Philadelphia, we were confronted with the problem of how to utilize the areas within the building’s core that were no longer needed (commercial rest rooms, mechanical rooms, etc.), but that were located in areas that were not plannable for residential units. In that case, we ended up stacking the amenities vertically up through that building within the core. So, we put to good use what was an otherwise unusable part of the floor plate. That allowed our client — who had originally planned an entire floor of amenities — to free up that floor for more units. So, the strategy actually helped their metrics and their pro forma for the project. It’s enjoyable to not just come up with the design solution, but to also deliver a good business solution for our clients.
In both cases — with Vanbarton Group at Pearl House and PMC Property Group at Franklin Tower — we realized the importance of having a client who can think creatively and has experience with conversions.
How can Class B buildings be designed to be beautiful and livable as housing, despite not being optimal as office spaces?
You don’t want it to feel like an office building when you walk in. You want to make sure you bring in that hospitality-forward design mentality — not only how you plan the units spatially, but also what the finishes are, and having the residential and amenity spaces scale appropriately so the overall feeling is more intimate and residential and less voluminous and commercial. It comes down to being more creative with your layouts and taking advantage of every inch that you can. Figuring out how to arrange and interlock the units together in a non-traditional way in order to maximize every square foot not only helps our clients make the project work financially, but results in a well-designed, unique space for the user.
If you walk into Pearl House on a typical floor, it doesn’t feel like an office building. As we’ve seen with this project, which is over 90% leased already, the feedback we’re getting from the sales team is that prospective renters say it feels very unique, very different, and much more interesting than typical ground-up construction.
Cities like New York and Calgary are seeing great success converting offices to residential. What are they doing right? What could other cities learn?
I think both cities have done a relatively good job of balancing incentives and regulatory changes — albeit in very different ways and with very different programs.
The City of Calgary, which had high vacancy rates well before the pandemic, got a bit of a head start in planning for this problem and how to deal with it, and they created a very clear set of incentives aimed at revitalizing their downtown by co-investing and converting vacant office space into housing (primarily), but also academic spaces, hotels, and other uses. They even incentivized demolition for buildings deemed not suitable for any of those uses. Their program became an early model for other cities as they began wrestling with what type of zoning and policy changes they needed to make.
I would say New York City has done a fairly good job as well, working between city and state policies, trying to come up with a thoughtful balance of tax incentives, zoning changes, and policy changes that will help spur this type of development. The state tax incentives were passed in April of last year, and the city zoning changes have finally fallen into place, so that’s opened up the pool of buildings eligible for conversion.
And so, over the last six months in New York City, we’ve seen many more projects move from conceptual feasibility studies to full design and construction. We think that’s an indication that the policy makers did a reasonably good job of balancing all the different stakeholders’ input — and these decisions are leading to real projects breaking ground. The recent spike in transaction volume shows investors still believe New York City is a solid long-term investment.
For media inquiries, email .
