Sep 28, 2022 - Economy

Cities push to convert deserted office buildings into housing

Illustration of a high-rise office building with an oversized "Home sweet home" embroidery piece framed and hanging from the roof

Illustration: Annelise Capossela/Axios

Cities and states across the country are looking to transform vacant office buildings into housing — a solution for both empty downtowns and housing shortages.

Why it matters: Commercial districts with little to no residential presence turned into near ghost towns during the pandemic, becoming a blight on the cityscape and a detriment to local businesses like shops and restaurants.

  • Live-work neighborhoods, however, fared better.
  • And much of the U.S. still faces a persistent housing shortage.

What they're saying: “We need to recognize how we’ve evolved during the pandemic,” said Dan Garodnick, New York City's director of city planning and the chair of a new Adaptive Reuse Task Force that's expected to recommend regulatory changes by the end of the year that would spur conversions of obsolete office buildings.

  • Adaptive reuse of old office buildings has happened on the margins for decades, but the pandemic has accelerated interest in it, says Wendi Shafran, a principal at FXCollaborative Architects, and also a member of the N.Y.C. task force (views her own, not the task force's).

The big picture: Despite the fact that offices are still only half-full in many cities, these types of conversions have yet to really pick up steam. They’re expensive, and loads of red tape and zoning laws usually get in the way.

  • But a few big cities are creating new incentives they hope will unleash a wave of housing conversions in the decade ahead.

State of play: It's not just New York. Chicago just this week proposed an initiative to repurpose high-vacancy buildings in its downtown financial district into homes, offering tax credits and incentives along with financing tools.

  • The Los Angeles City Council is expected this fall to consider an updated ordinance that would provide financial incentives and wider eligibility to convert downtown office buildings.
  • California's 2023 budget allocates $400 million in incentive grants for office-to-residential conversions; Denver's provides funds to study the matter. Washington, D.C. Mayor Muriel Bowser pitched a 20-year tax abatement tied to these kinds of conversions.

Converting office buildings won’t alone solve the housing shortage, but it’s one of many avenues that government officials want to tap to make a dent in the problem.

By the numbers: Real estate trade association REBNY estimates that a "conservative" conversion rate of 10% of N.Y.C's lower-tier office buildings could generate approximately 14,000 new residential units.

  • And an L.A. study by Rand Corp identified underutilized commercial properties that could collectively produce about 92,000 housing units.

Between the lines: Adaptive reuse of existing buildings is also gaining popularity for its environmental benefits, says Roberto Vazquez, project director at Omgivning, an L.A.-based architecture firm.

What we're watching: Office leases are often anywhere from 10 to 20 years long, so the full extent of the office-building exodus isn't even clear yet.

  • But a lot of leased office space now has less than half the daily occupancy that it did before the pandemic, swipe-in data from Kastle covering 10 metro areas shows.
  • If vacancy rates grow further, the most likely candidates for conversion will be older, smaller buildings in need of upgrades — those that are now out of favor with companies that want newer, amenitized environs with which to lure employees.

The playbooks: Lower Man­­hattan and downtown L.A. undertook similar efforts in the early 2000s.

  • In New York, city and state coordination on financial incentives — plus regulatory and zoning changes targeting the depressed post-9/11 financial district led directly to around 25,000 housing units created from office buildings over the past few decades.
  • “It changed the character of the community … it really did revitalize the neighborhood,” said Shafran, who previously worked in lower Manhattan.
  • And L.A.’s original 1999 Adaptive Reuse Ordinance (which the city's current proposal would expand) made it easier for developers to undertake conversions downtown. It was groundbreaking at the time — and was hugely successful, says Vazquez.

The bottom line: Saying goodbye to concentrated office districts and 9-to-5 downtowns is probably a process that will play out for decades — part of the pandemic’s lasting impact on our lifestyles and communities.

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