Last year, owners considered converting an office condominium atop the iconic Saks Fifth Avenue department store in Manhattan into apartments, as landlords across the U.S. looked to find more lucrative uses for a surplus of outdated and struggling office space.
In a sign of how much times have since changed, one of the city’s most well-known real estate developers has acquired the property with plans to keep it as an office, albeit a nicer one.
Vornado Realty Trust is under contract to acquire the 382,500-square-foot office above the retailer’s Manhattan flagship for $218 million, executives confirmed. The deal for the 36-story tower, expected to close next month, lands as demand for top-tier office space in the area is beginning to outweigh what’s available.
Vornado’s plans underscore the spike New York City’s office market has experienced in recent months as both leasing and investment activity have positioned it well ahead of national recovery. Even more telling is the future owner’s plans to not only retain the property’s office use, but also pump more money into upgrading it as part of its widespread bet on continued demand across the Midtown area.
Leasing across Manhattan in the first half of the year has already blown past totals reported across the same period in the years leading up to the pandemic. Tenants collectively signed on for more than 16 million square feet between January and June of 2025, compared with about 15 million each year between 2016 and 2019, according to CoStar data.
Vornado’s dual acquisition and renovation plans are “a reflection of the recovery in New York City more than anything,” said Victor Rodriguez, CoStar’s senior director of market analytics. “The opportunity to revamp a property in this location is a major selling point.”
Pivot in plans
Cohen Brothers Realty Corp., the seller in the pending agreement with Vornado, had as recently as last year been exploring the possibility of converting the office portion of the flagship property into a residential use.
The landlord said at the time that it was pursuing alternatives for the property as outdated office inventory in Manhattan and elsewhere across the country faced an uphill battle in attracting tenants and backfilling larger vacancies. Cohen Brothers said in a public filing that the plan to convert the tower could remedy the Fifth Avenue building’s challenges as it “struggled to be competitive with the more modern office buildings.”
In some locations, apartment conversions may still make more financial sense than investing in an office, as the U.S. office vacancy rate continues to climb to new highs. About half of major cities tracked by CoStar have posted office occupancy gains in the past 12 months, with the rest reporting losses.
“This situation is historically unique and indicates the fragmented nature of the current office market,” according to a CoStar market report. “New York, with its exceptionally strong recovery in office attendance, according to data from Placer.ai, is the clearest example of strong performance.”
Fast forward more than a year, however, and the topography of Midtown Manhattan’s office market has all but transformed.
All 10 of the largest deals signed in the New York market so far this year have landed at trophy Midtown office towers, making the area especially competitive for companies looking to expand. What’s more, office availability in Manhattan has fallen to about 90 million square feet, according to the data, the first year it has dipped below 100 million since 2020 and another indicator of the market’s rapid shift in landlords’ favor.
Those dynamics have set the stage for larger, institutional-level investors such as Vornado that, after years of sitting on the investment sidelines, are gradually returning to widen their stake in Manhattan’s office market rebound.
‘Strongest by far’
Once finalized, the real estate investment trust intends to kick off an extensive capital improvement plan aimed at upgrading and repositioning the building to become more competitive with other new or recently overhauled office properties across the area.
The condominium portion of the 623 Fifth Ave. building is about 75% vacant, but Vornado’s redevelopment plans, once complete, will remake it into a “boutique office building” that more closely aligns with the REIT’s other nearby properties.
Vornado’s dual acquisition and renovation plans are “a reflection of the recovery in New York City more than anything,” said Victor Rodriguez, CoStar’s senior director of market analytics. “The opportunity to revamp a property in this location is a major selling point.”
The New York REIT’s purchase also coincides with a broader plan to focus on its Manhattan office portfolio.
The company recently said it is open to selling off its 555 California St. tower in downtown San Francisco and the Mart in Chicago, a possibility that, if realized, would complete Vornado’s yearslong journey to simplify its portfolio to become a New York-only real estate firm.
“Manhattan is universally claimed to be the strongest real estate market in the country, and the strongest by far,” CEO Steven Roth recently told analysts. “Our clients are expanding, demand is strong and broad-based, and here’s the punchline: Available space continues to evaporate quickly. Taken together, all this is the very definition of a landlords’ market.”