The office space conversion boom is back in business after a near-death experience this summer in Manhattan.

The national movement ground to a halt in July when New York City officials were forced to evacuate a multiblock area around the former Pfizer headquarters. The structural columns on the building’s upper section buckled when contractors attempted to expand the floors above the supports, and officials were initially concerned the building could suffer a partial collapse.

About two dozen conversion projects throughout New York were halted while inspections were conducted. The city eventually found the structural problems were specific to the Pfizer project and no other conversions posed a danger.

Advertisement

Months after the incident, new steel supports were put in place and work began again in late October on the building, the city’s largest conversion project. When completed, the structure is expected to house more than 1,600 residential units.

New York City’s other projects are under construction and, according to The Wall Street Journal, permits for 16 new conversion projects have been granted. These projects are expected to add up to 12,000 apartments in New York, and the city has another nearly 4,400 units in the pipeline.

RentCafe reports that at the start of this year, the office conversion pipeline had reached 90,300 apartments, up 28% from 2025. That marked the second record year in a row for conversions.

The Big Apple is the leader in the nationwide movement, followed by Washington, D.C., which plans to create about 8,500 apartments. Chicago is third with a pipeline of about 4,400 apartments.

Currently, Chicago has 20 office conversion projects underway that are worth up to $1.8 billion and will add an estimated 3,500 apartments to the downtown core. Los Angeles and Dallas round out the top five, with plans to convert offices to 4,340 units and 3,966 units, respectively.

Office sector recovery adds a wrinkle

While business is back on schedule, a new snag has emerged that could slow the conversion process: The office sector appears to be recovering faster than many expected.

Thanks in part to a lack of new office construction and the boom in artificial intelligence, office vacancies have begun to tick down in certain cities, giving landlords reason to hold off from converting to see if their properties can lure office renters back.

The CoStar Group has revamped its forecast for 2027, expecting U.S. office vacancy rates and rent growth to improve throughout the year. The national office vacancy rate is expected to end 2027 at 13.6%, slightly lower than the previous forecast of 13.7%.

Net absorption is now expected to reach 20 million square feet in 2026 and 9 million square feet in 2027, an upgrade from an earlier forecast that anticipated annual net absorption of only 13 million square feet this year and 5 million square feet in 2027.

Office rent growth is also expected to improve, “with average market asking rents increasing by 2.5% year over year for the next few quarters before accelerating above 3% toward the end of 2027,” CoStar noted in a press release.

CoStar points out the improved office environment could be upended by persistent inflation, higher interest rates and increased use of AI resulting in lower demand for some types of knowledge workers in the future.

“Office rent performance has been surprisingly strong over the past year despite high vacancy, likely because office supply growth has slowed substantially, limiting the availability of space in the most desirable buildings,” said Phil Mobley, national director of office analytics at CoStar Group, in the press release. “As a result, the upgraded projection for office rent growth has less to do with the overall reduction in supply caused by the removal of non-competitive space and more to do with the dramatic slowdown in new construction.”