Office-to-apartment conversion sweeps the US in 2023

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Conversion — Office-to-apartment conversion refers to the process of transforming an existing office space or commercial building into residential living units. It involves repurposing the interior layout, design, and infrastructure of the office space to accommodate residential amenities and meet housing regulations. Office-to-apartment conversions are typically undertaken to address the growing demand for urban housing and to revitalize underutilized or vacant office buildings.

The conversion process includes modifying the floor plan to create individual apartments, integrating necessary residential features such as bedrooms, bathrooms, kitchens, and living areas, and adapting the building’s systems to meet residential building codes, including plumbing, electrical, and HVAC systems. The design may also involve incorporating additional amenities like common areas, fitness centers, or rooftop gardens to enhance the livability of the converted space.

Office-to-apartment conversions offer the potential to maximize existing infrastructure and contribute to urban densification, creating new housing options while revitalizing commercial areas. Such projects often provide unique living spaces with industrial aesthetics and can contribute to the overall sustainability and efficient use of urban resources.

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A growing trend

Office-to-apartment conversion has become a sweeping trend across the United States, something many are looking to capitalize on. Mayors in several cities have expressed a desire to loosen rules that could slow the pace of office-to-apartment conversion. For example, some cities are looking to offer generous tax abatements to developers eager to build new housing.

Muriel Bowser, the mayor of Washington, DC, spoke over a December 2022 news conference to voice her support for housing budget proposals.

“We have a great opportunity to change the uses in downtown,” said Muriel.

DC Fiscal Policy Institute executive director Erica Williams recalled Bowser’s 2023 proposal to boost the downtown developer tax break, saying: “It’s absolutely a budget gimmick.”

“We fully support the idea that some of these buildings could be turned into residential properties or into mixed-use properties, but that we don’t necessarily need to subsidize that.”

Meanwhile, Mayor Eric Adams of New York assembled a task force to study the effects of zoning charges and possible abatements for developers, which includes units in conversions.

Other cities, like Philadelphia previously embraced policies to revitalize their downtown areas. In Philadelphia, homeowners and investors received more than $1 billion in tax breaks for their renovation projects.

Taking on a new challenge

Although it can be difficult, a small collective of developers have been taking on this aspect of the real estate business. For example, since 2000, 489 buildings in the United States have been converted. According to real estate firm CBRE, the conversion has created 49,390 new housing units across the final quarter of 2022.

Established investors like Societe Generale and KKR have also collaborated with Philadelphia-based Post Brothers, financing institutional-scale office conversions based in expensive central business districts.

“Capital has gotten much more limited,” said Post Brothers CEO Michael Pestronk. “We’re able to get financing today… it is a lot more expensive than it was a year ago.”

Experts believe that local governments would change zoning laws and building codes to help ease the transition into conversion over the years.

“Our rules are in the way, and we need to fix that,” said New York’s Department of City Planning director Dan Garodnick.

The benefits of conversion

Office-to-apartment conversions offer several benefits both for individuals and communities.

From an individual perspective, converting offices into apartments can provide much-needed housing options in urban areas where space is limited. It allows for the repurposing of underutilized or vacant office buildings into residential units, potentially increasing the availability of affordable housing and reducing urban sprawl. These conversions can also offer unique living spaces with industrial aesthetics, attracting those seeking a more distinctive and character-filled living environment.

For communities, office-to-apartment conversions contribute to the revitalization of commercial areas, breathing new life into outdated or abandoned office buildings. This can lead to increased economic activity, as new residents support local businesses and services. Conversions also promote urban densification, making more efficient use of existing infrastructure and reducing the need for further development on undeveloped land.

Moreover, office-to-apartment conversions align with sustainability goals by repurposing existing structures instead of constructing new buildings. This reduces construction waste and minimizes the environmental impact associated with new construction.

Overall, office-to-apartment conversions address housing needs, stimulate economic growth, promote sustainable practices, and enhance the vibrancy and livability of urban areas.

Photo credit: DepositPhotos