Aug 4, 2023 - Economy

Office-to-apartment conversions cooled in '22, but the pipeline heated up

Data: RentCafe; Chart: Axios Visuals
Data: RentCafe; Chart: Axios Visuals

The number of new apartments created from old office space declined last year, according to a new report.

The big question: Does that mean this much-hyped pandemic trend is dying already? The answer ... not really.

  • Conversions peaked in 2020, but those projects all kicked off two or three years earlier — that's how long these things take to go from from seedling to reality.
  • Post-COVID projects haven't really started hitting the market yet.

State of play: In fact, the pipeline for office conversions is growing, according to the report, by RentCafe, which analyzed data from commercial real estate intelligence service Yardi Matrix.

  • "I believe there will be a huge boom in the next year and the year after, in terms of project starts," Steven Paynter, of architecture firm Gensler, said in the report.
  • That would lead to a flurry of project completions over the 2024 to 2027 span, he added.
  • "There's already a kind of boom happening, and I think that will just increase as incentive programs from cities, states and federal will get aligned behind them," he added.

The big picture: Converting empty and obsolete office buildings into residential space is one way to attack two problems: the housing shortage and depleted demand for office space.

What to watch: City and state governments are still trying to figure out how best to incentivize conversions, in a bid to revive downtown areas. It's an effort that'll take years to unfold.

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