Local Property Outlook: Rentals Sizzle, Offices Languish, and Hotels Boom
The year that ended in December was the nearly best of times for residential property owners in Lower Manhattan, and pretty close to the worst of times for office landlords, according to the Downtown Alliance’s annual analysis, “2024 Lower Manhattan Real Estate Q4 and Year in Review Report.”
On the residential side, this summary notes that Lower Manhattan currently has “35,104 units in 347 residential buildings. There are 8,136 units in 20 buildings under construction or planned for development, with about 57 percent currently planned as rental units and 43 percent as condos.” The local median rent is now $4,600, “the sixth-highest rent figure on record,” the Alliance notes, and well above median rent for Manhattan overall of $4,195.
For owner-occupied dwellings, the picture is more nuanced. While the value of local median sales climbed in the fourth quarter, ending the year at $1.09 million, this represents a decline of 7.1 percent for the year overall, and a falloff of 11.2 percent compared to the fourth quarter of 2019. “Overall, median condo prices in Lower Manhattan have remained relatively steady for the past two years,” the Alliance notes. “Before that, median pieces fluctuated drastically, with Lower Manhattan setting its own record of $2.05 million in Q2 2020 and then again in 2022 at $2.08 million.” The overall volume of condominium and cooperative sales also continued a multi-year retrenchment, with 260 units turning over in 2024, compared with 303 in 2023, 350 in 2022, and 523 in 2021.
In a striking illustration of what has become a dominant trend, the Alliance notes, “the pace of office-to-residential conversion projects increased dramatically this year. 3,221 units across five new developments were announced in 2024 – all of them conversions. Of the over 8,000 units either under construction or planned, 64 percent are also conversions.”
There is little mystery about why so many local office towers are being converted to residential use: the commercial sector is hemorrhaging cash. “Lower Manhattan’s office market struggled in 2024,” the Alliance notes. “Anemic leasing and limited relocation activity lead to the market’s worst performance in memory with only 2.24 million square feet of activity recorded.” This represents a 21 percent decline from 2023, and a 40 percent falloff from the five-year average.
In one of the few bright spots for this segment of the local market, Downtown’s “net absorption” (a real estate industry term of art denoting how much space was newly occupied, minus how much became vacant), was positive for the year, but “this can largely be attributed to several underperforming office properties announcing residential conversion projects and removing large blocks of long vacant office space from the market,” the report notes.
The Alliance analysis also documents that multiple Lower Manhattan buildings are in various stages of default, “special servicing,” or outright foreclosure. These include the office towers at 17 State Street, 25 Broadway, and One Whitehall Street, and the residential building at 180 Water Street.
Somewhat more sanguine is the local retail outlook. More than 60 new stores opened in 2024, while closings fell to 25 last year, from 42 in 2023. But the Lower Manhattan property segment that is going gangbusters is the hospitality industry, which (in the fourth quarter) saw an occupancy rate of 88 percent (tying the previous record, set in 2019) and booked its highest-ever average daily room rate, of $363.16. This benchmark represents a 20 percent bump over the third quarter of 2024 and is also five percent above the previous record, set at the end of 2023.
“Lower Manhattan’s office market continues to face some real challenges,” Downtown Alliance president Jessica Lappin said. “However, it is worth celebrating the gains made by our tourism and hospitality sectors, which remain a bright spot.”