The struggles of many office properties have led some to wonder what is the best way to repurpose them. One option is turning them into much needed market rate affordable multifamily housing, usually called workforce housing. An interesting workforce housing conversion project just took place in Orange County, California. A 10-story, 1967-built office tower that once housed Orange County’s Social Services Administration has been re-adapted into residential workforce housing. Alliant Strategic Development was the developer, part of the wave of office conversions that experts say will help stem Southern California’s growing housing crisis.
Orange County’s office vacancy rate was 11.4 percent at the end of 2019, spiking to 16 percent in the last two years due to the pandemic and the wave of remote work arrangements. The office vacancy rate is as high as 23 percent in Costa Mesa and other parts of Orange County, according to JLL. Many older Orange County offices are near obsolescence and as occupiers look to new buildings with Class A amenities, some older offices are entirely vacant. As vacancies add up, office conversions are making sense to more investors.
Office conversions were a trend in the 2010s, but slowed, that is until the pandemic. Since 2020, nearly 32,000 new apartments have been created through adaptive reuse, with 41 percent from former office buildings, according to Yardi Matrix. This type of adaptive reuse doesn’t come without challenges. For example, in the Orange County office conversion, developers had to create an entirely new sewer system, install fire sprinklers on each floor, and add a backup electric generator. Adapting offices to residential is more expensive than hotel-to-residential conversions, but experts say conversions are still more cost-effective than new construction.
The new Orange County apartment building opened last summer and is currently 88 percent occupied. Low housing supply and stubborn office vacancy rates will likely push other owners into similar projects. Considering the housing crisis in many parts of America this could be a case where market forces are promoting a societal benefit.
