Two sizable New York City office buildings with vacancy rates far higher than the city average are the first to qualify under a program for tax incentives that aims to expedite the potential conversion to new uses.

The properties at 175 Water St. in the Financial District and 850 Third Ave. on the east side of midtown were named in the first round of awardees for the Manhattan Commercial Revitalization program, which gives owners of commercial buildings south of 59th Street various tax benefits to overhaul their properties, the New York City Economic Development Corp. and New York City Industrial Development Agency said Tuesday in a statement.

The tax incentives are meant to help improve the city’s office building stock to “create desirable workspaces that will attract businesses and top talent” and ensure they will comply with Local Law 97 environmental benchmark targets, NYCEDC and NYCIDA said.

The move comes as New York and other U.S. cities are hurting from record-high office vacancies as the return-to-office rate hasn’t seen any sizable pickups nearly four years after the pandemic changed how Americans work. Meanwhile, the so-called flight-to-quality trend of office tenants seeking well-located properties with appealing amenities has created a sharp divide between the haves and have-nots in the office space, leaving some aging and obsolete properties with outsize vacancies. This has prompted calls nationwide to renovate them to meet the demands of today’s office tenants or convert them for residential and other uses.

New York isn’t the only city taking action to address the blocks of office spaces sitting empty. Policymakers in Chicago, San Francisco and Washington, D.C., also have taken actions to revitalize traditional office districts via conversions of vacant offices, hotels and other commercial properties into housing.

“Aging and vacant office space is hurting landlords, small businesses, and ultimately the future economic success of our city,” NYCEDC President and CEO Andrew Kimball said in the statement. The New York tax incentives for office overhauls, among other programs, will help “re-imagine our commercial business districts into dynamic 24/7 destinations that are great places for people to live, work, and play,” he said.

As part of the bid, the city seeks to convert up to 10 million square feet from aging and vacant office space to “high quality” office space with amenities to attract today’s workforce that favors a hybrid work schedule model, NYCEDC and NYCIDA said. There’s also a push for legislative and regulatory changes to accommodate the conversion of 20 million to 30 million square feet of vacant office space to residential.

About half of office space in Manhattan, or 255 million square feet, represents underperforming buildings, according to the statement. In a sign of the flight-to-quality trend, the “higher performing” office buildings are seeing return-to-office rates as high as 80% in a week, versus about 60% for most office buildings, NYCEDC and NYCIDA said. Manhattan generates 58.5% of the citywide office and retail property tax revenues, and 45% of all jobs in the city, the agencies added.

Regarding the two office buildings to be renovated, 175 Water St., the former home of insurance giant AIG and owned and operated by WSA Waterfront and Milky 100, plans to feature upgrades that will help it attract “fashion, arts, creative, and technology tenants of varying sizes,” according to the statement. The planned upgrade of the 31-story building that’s over 97% vacant will feature about 45,000 square feet of retail, 425,000 square feet of office, 73,500 square feet of creative maker space and 73,500 square feet of amenities.

The building spans 716,384 square feet, according to CoStar data.

WSA plans to invest $150 million to demolish and rebuild all interiors and make public outdoor improvements.

“Our goal is to advance [the Financial District’s] standing as the center of Manhattan’s creative economy, welcoming artists, designers and other creatives to animate and expand its growing residential and working population,” WSA spokesperson David Resnicow said in the statement.

As to the 21-story, 618,000-square-foot 850 Third Ave., located between 51st and 52nd streets, owner HPS Investment Partners plans to invest $62.7 million to upgrade the lobby and add new food and beverage offerings in a vacant retail space on the ground floor. The project calls for 10,939 square feet of retail, 592,681 square feet of office and 5,500 square feet of amenities, including green terraces on five separate floors and a new conference space.

HPS also plans to create a childcare center spanning 5,000 square feet that it said the neighborhood is lacking. The property last underwent a major renovation in 2008. HPS expects building occupancy to rise to 95% from what CoStar data shows as just 47.5%.