Stubbornly high office vacancy rates around the U.S. have led to a lot of cities and building owners exploring converting office properties to residential buildings. These kinds of conversions had been on the rise starting in 2010, after hitting a record high in 2020. But despite the renewed interest in conversions following the pandemic, numbers have fallen since then. Another boom of office-to-residential conversion is expected to occur in the next couple of years as more major cities roll out programs offering incentives to developers to help them convert empty offices into housing. To try and see which cities are leading the way when it comes to residential conversions, we ranked cities on how many units have been created by converting office space to residential use in 2022.
|Los Angeles, CA||692|
|Oklahoma City, OK||193|
The second-largest city in the U.S., Los Angeles, posted the highest number of apartment units converted from office space in 2022. Los Angeles’ downtown office market has been one of the markets that has struggled the most with high office vacancy rates. In May of this year, the city’s office vacancy rate hit a record high of 30 percent, while major office landlords like Brookfield Properties defaulted on loans on two office towers in downtown Los Angeles. In light of this, city officials and industry leaders have been determined to do something with all the empty space. Los Angeles’ American Institute of Architects chapter has been pushing to advance more adaptive reuse in the city this year, especially in the downtown area, while city officials have made conversions a part of its DTLA 2040 Community Plan. A report released last month found that 235 office buildings in LA were identified as prime candidates for converting into residential buildings; of the 235 buildings identified, including buildings in the greater metropolitan area of Los Angeles, 76 were designated Class A properties.
For the next three highest-ranked cities on the list (Alexandria, Virginia; Baltimore, Maryland; and Cleveland, Ohio), conversions from office to residential made up 100 percent of the adaptive use projects in 2022. Office buildings in Alexandria, located just outside of Washington, D.C., tend to have smaller floor plates than buildings in major markets, and many of them are standalone properties rather than connecting buildings, which makes them better candidates for conversion. Last summer, USAA Real Estate and the real estate development firm Lowe completed a conversion of three office buildings in Alexandria that were constructed in the 1980s into 435 residential units and 115,000 square feet of office. In Baltimore, where high vacancy has long plagued the city’s downtown office market, converting office buildings to residential is common. A report from a city agency found that over the last decade, office space declined 10 percent while residential units doubled. In Cleveland, one of the biggest cities in the Midwest, more than 10 percent of the city’s office space, or 3.5 million square feet, is slated to be converted or is already in the process of conversion, according to CBRE.
Some of the country’s largest—and emptiest—office markets didn’t make the list, but that doesn’t mean they aren’t making efforts to convert more offices to residential. New York City leaders recently unveiled a plan to rezone manufacturing areas in Midtown Manhattan, paving the way for vacant office buildings to be converted into housing. In a separate plan announced earlier in the year, city leaders released recommendations from a city task force dedicated to repurposing vacant office buildings, pegging the potential of conversions to create up to 20,000 new homes over the next decade. This summer, Boston launched a pilot program that helps office building owners convert their properties into residential housing by offering incentives like tax abatements and fast-tracked permitting. San Francisco leaders recently announced their own initiative for supporting owners in converting their office properties into other uses, including housing.
Despite the overall slowdown in recent years in office to residential conversions, more than 120,000 apartments in various stages of conversion are expected to enter the market in the coming years, representing a 63 percent increase from figures in 2021, when 77,000 units were expected to enter the market, according to Yardi Matrix. Nevertheless, transforming office properties to residential use remains a difficult task. Even for buildings that are good candidates for conversion, it’s a big undertaking that can be costly and take longer than other kinds of developments, especially with the ongoing challenges the construction industry is facing. But as the data shows, a lot of cities are finding ways to get it done, especially in smaller office markets. As more municipalities introduce legislation, programs, and incentives to make it easier for owners and developers to complete conversions, and advanced AI software that helps streamline conversions is adopted, the future is looking bright for office-to-resi conversions.