Nov 4, 2022 - Economy

Office-to-apartment conversions soared 43%

U.S. office-to-apartment conversions
Data: RentCafe; Note: Points are based on two-year periods. Chart: Tory Lysik/Axios Visuals

Conversions of office buildings into apartment units are picking up — they hit a high last year and are poised to grow even more, according to a new report from RentCafe.

Why it matters: America had a housing shortage even before the pandemic drove demand for larger living spaces. Conversions are one way to attack the problem, especially if office building occupancy remains depressed.

By the numbers: Overall apartment conversions — including those of warehouses, hotels and health care buildings — jumped 25% during 2020-2021, to about 28,000 units, compared to the prior two-year period before the pandemic, according to RentCafe.

  • It analyzed data from the commercial real estate intelligence service Yardi Matrix.
  • Conversions of office buildings jumped the most — by 43%, to 11,090 units. They make up the largest share of conversions.
  • Look ahead: 77,000 apartment conversions are now in the works, setting the stage for a boom in the next few years, RentCafe says.

Be smart: The potential conversion wave caused by the pandemic — and the empty office buildings it led to — is probably barely even reflected in the 2021 data.

  • It'll take decades for long-term office lease cancellations to work their way through the system.
  • Plus, conversions are expensive — sometimes costing more than new buildings — and often run into regulatory and zoning red tape.

What we're watching: Cities like New York, Los Angeles and Chicago are now actively proposing plans to relax building rules and create tax breaks to incentivize property owners to take on conversions.

  • Officials hope that'll create much-needed housing while transforming half-vacant downtown business districts into more bustling live-and-work neighborhoods.

The bottom line: Those incentives — if they come to pass — could push these conversion numbers up higher.

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