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Bob Knakal, Chairman and CEO of BKREA, believes the recovery in New York City’s Class B and C office market is already underway — and that many investors may be underestimating how quickly the rebound is progressing.
After years of negative sentiment surrounding aging office product, rising vacancies, remote work disruption, and collapsing pricing, Knakal argues that the market has quietly passed its bottom. According to him, improving leasing activity, shrinking office inventory, and the success of office-to-residential conversion programs are fundamentally reshaping Manhattan’s office landscape.
Drawing from decades of experience navigating multiple real estate cycles, Knakal explains why investors waiting for “certainty” may already be missing the most attractive buying opportunities in New York City office assets.
Knakal argues the market is now likely several months beyond its lowest point, even though many investors continue viewing office assets through the lens of last year’s pessimism.
The 467m tax abatement program has accelerated the conversion of more than 80 Manhattan office buildings, removing approximately 26 million square feet of office inventory from the competitive leasing market.
As obsolete office inventory disappears through conversions, vacancy pressure is easing while leasing activity and positive absorption continue strengthening across the market.
Investors are increasingly recognizing that severe repricing has already occurred, creating opportunities in well-located Class B and C office buildings with repositioning or leasing potential.
Knakal emphasizes that recoveries begin quietly while fear remains elevated. By the time investor confidence fully returns, pricing has often already moved significantly higher.
BKREA recently marketed a highly vacant Flatiron District office property where office investors aggressively outbid residential conversion buyers, ultimately paying roughly 10 percent more than conversion-based pricing assumptions.
Knakal notes that commodity office buildings without repositioning pathways or clear leasing strategies may continue struggling, while adaptable assets are attracting stronger investor demand.
The recovery of New York City’s Class B and C office market could create one of the most important investment shifts in commercial real estate over the next several years.
For years, distressed sentiment dominated the sector. However, the combination of supply reduction, improving leasing fundamentals, and lower basis pricing is beginning to attract sophisticated capital back into the market.
According to Knakal:
“You never know you are at the bottom of the market until you are past it.”
That philosophy reflects a broader theme repeated throughout real estate cycles: the best opportunities often emerge when uncertainty and fear are still elevated.
According to Bob Knakal, the recovery is being driven by shrinking office supply, improving leasing activity, office-to-residential conversions, and significant repricing of older office assets.
The 467m program is an incentive initiative encouraging office-to-residential conversions across New York City, helping remove obsolete office inventory from the market.
Knakal estimates that more than 80 office buildings representing approximately 26 million square feet are actively pursuing residential conversion in Manhattan.
Many investors believe pricing already experienced its sharp correction, while improving market fundamentals are creating more attractive risk-reward opportunities.
No. Knakal notes that well-located buildings with repositioning, leasing, or conversion potential are attracting the strongest investor interest, while weaker commodity office assets may continue facing challenges.
BKREA is a New York City-based commercial real estate brokerage specializing in investment sales, development sites, office properties, and seller representation.
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