Why NYC Nonprofits Might Have To Start Scrambling For Space

When Open Impact Real Estate arranged a 46K SF deal for a nonprofit on Manhattan’s Sixth Avenue a year ago, there was plenty of vacancy along the corridor, said Stephen Powers, the brokerage's co-founder.

“Now, Sixth Avenue — it’s all leased up,” he said. “So now, people are moving to Third Avenue who were looking at Sixth Avenue.”

The momentum pushing some tenants to Third Avenue — which has fewer transit options and has been among Manhattan's worst-performing office submarkets — is emblematic of the dynamics facing New York City's nonprofit tenants.

After several years of tenants having more power than landlords in the office sector, that dynamic is shifting. The highest-quality buildings are filling up, and the cheapest buildings are being converted to housing or other uses, leaving fewer options for budget-conscious office seekers.

For nonprofits, finding an office space close to transit is imperative, brokers told Bisnow. Remote work is often offered to employees as a perk, counteracting pay that is lower than in other sectors. That often means a handful of employees in each company have commute times upward of an hour, Powers said.

The 46K SF deal for Selfhelp Community Services, which specializes in home healthcare and community-based services, to relocate to Northwood Investors’ 1180 Sixth Ave. was only possible when structured as a leasehold agreement. Nonprofits that are financially able to sign on to 30-year leaseholds get a tax exemption known as 420-a.

But plenty of nonprofit service providers don’t have deep enough pockets to execute a leasehold.

Open Impact is a couple of days away from signing a 5K SF office deal for a national foundation, but it has been a struggle, Powers said. The search started in the area around Grand Central Terminal, but the lack of available space pushed his tenant’s search toward the Penn District around Penn Station.

“In that neighborhood, there was a lot of vacancy,” Powers said. “And then, as we were negotiating the deal, one building that had four floors available all of a sudden leased up three of them and there was only one left.”

In another building, where the landlord had initially been willing to do a turnkey deal for a nonprofit, there were suddenly four offers for the space. Eventually, Powers found one landlord who was able to commit to the client’s needs at the right budget.

“I think it tells the story of what's happening to nonprofits,” Powers said. “There was a time in which they could just sit and wait, make a decision when they wanted to. But now they have to be proactive.”

A supply squeeze is happening as demand spreads down from the office market’s best offerings. Trophy office has been leasing at a rapid clip in NYC in recent quarters, creating demand for Class-A, A-minus and B-plus buildings from tenants who have been pushed out of the market’s best-in-class space. 

While as much as three-quarters of leases signed by for-profit companies were for Class-A and trophy space during some periods last year, the shift toward lower-quality space had already started for nonprofits, data provided by Savills to Bisnow shows. In 2023, 51% of nonprofit leases were for Class-A space. Last year, around two-thirds of the deals signed by nonprofits were for Class-B space.

“This year will be the year where Class-B benefits from that trickle down of the top end of the market being very strong,” said Alex Woodlief, a senior director at B6 Real Estate Advisors. “It may end up pricing out nonprofits, or at least ones that are coming up for renewal or looking for new space.”

At the same time, some of the lowest-quality office space has been removed from the market for conversion to residential uses.

David Carlos, a vice chairman at JLL and head of the brokerage’s nonprofit, education and government practice, said that around 4.1M SF of office was pulled for residential conversion in 2024 alone. Dozens of office owners have applied to convert their buildings to residential uses, and JLL predicts another 5M SF could be taken offline for conversions in 2025.

“That will start to have an impact on some of these nonprofit tenants, because there's going to be less inventory — whether it's Downtown or whether it's Midtown,” Carlos said.

That dynamic creates a lot of “pressure on the bottom of the middle of the market, where a lot of nonprofits play,” Open Impact co-founder Lindsay Ornstein said.

“There's a tiny window left before that pressure starts to really mount.”

Nonprofit leasing volume totaled 743K SF last year, down from 771K SF in 2023, according to Savills. That came as the overall office leasing volume grew and as the nonprofit sector's share of total leasing dropped from 3.6% to 2.9%. 

Leasing reports don’t capture the full picture for nonprofits’ office footprints because of leasehold deals, Savills Vice President Marisha Clinton said.

“I think we could see more of the mid- to large-size nonprofits execute longer-term deals around Manhattan,” she said. 

But the purchasing power of nonprofits varies wildly, depending on their size and the subsector they serve. Many also rely on government funding in some form, adding to potential instability. Last week’s federal funding freeze, which introduced “chaos” for nonprofits that count on federal funding in any capacity, could become the “new normal,” Carlos said.

“That makes it very difficult to do any type of medium-term or long-term planning,” he said. “When you're talking about real estate, you're really talking about medium- and long-term planning. I'm sure it's going to have an impact on the type of commitments that these organizations are willing to make.”