In a significant transformation of the U.S. commercial real estate landscape, 2025 marks the first time in over 25 years that more office space is being removed through demolitions and conversions than is being added via new construction. According to a report by CBRE, by the end of this year, approximately 23.3 million square feet of office space will be eliminated, while only 12.7 million square feet of new office buildings are expected to be completed across 58 major U.S. markets .
This shift is largely driven by the enduring impact of remote work trends that gained momentum during the COVID-19 pandemic. Despite some companies implementing return-to-office mandates, office occupancy rates remain below pre-pandemic levels, with national vacancy rates hovering around 19% . Many older office buildings are now considered functionally obsolete, prompting developers to repurpose or demolish these structures.
A notable aspect of this trend is the surge in office-to-residential conversions. CBRE reports that 85 million square feet of office space are currently targeted for such projects nationwide . New York City is at the forefront of this movement, with over 8,000 new apartments anticipated from former office spaces. Prominent developments include 25 Water Street, One Wall Street, and 55 Broad Street.
The 25 Water Street project, formerly known as 4 New York Plaza, is undergoing a significant transformation. The building is being converted into over 1,300 residential units, making it the largest office-to-residential conversion in the United States. The redevelopment includes adding 10 new floors and extensive amenity spaces, such as an atrium, spa, fitness center, and pools .
Similarly, 55 Broad Street, once the headquarters of Goldman Sachs, is being redeveloped into 571 residential units. The project aims to create an all-electric residential building, aligning with New York City’s environmental goals .
These conversions are not only revitalizing underutilized office buildings but also addressing the pressing need for housing in urban centers. New York City, for instance, has faced a significant housing shortage, with vacancy rates for rental apartments hitting a 55-year low of 1.4% in 2022 . By repurposing office spaces into residential units, cities can alleviate housing shortages while breathing new life into downtown areas.
Government policies are playing a crucial role in facilitating these conversions. New York State’s 467-m tax incentive, introduced as part of the FY 2025 Budget, encourages office-to-residential conversions with an emphasis on creating affordable housing . Additionally, Mayor Eric Adams’ Office Adaptive Reuse Task Force has proposed zoning changes to extend flexible conversion regulations to an additional 136 million square feet of office space, further promoting adaptive reuse projects .
Present opportunities, challenges remain. The pool of ideal buildings for conversion is finite, and high costs for construction labor, materials, and financing can hinder projects. Moreover, not all office buildings are suitable for residential conversion due to design and structural limitations .
Despite these hurdles, the trend of repurposing office spaces is gaining momentum beyond New York City. Washington, D.C., ranks second behind New York in office-to-residential conversions, with just over 6,500 future converted apartments. Other cities like Los Angeles, Chicago, Dallas, and Atlanta are also embracing this adaptive reuse movement to address housing demands and revitalize urban centers .
As the U.S. office market continues to evolve in response to changing work patterns and urban housing needs, the shift from traditional office spaces to residential units represents a significant transformation in urban development strategies. This adaptive approach not only addresses the surplus of underutilized office buildings but also contributes to alleviating housing shortages in major metropolitan areas.