Office-to-apartment conversions soared 43%
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.