Nov 30, 2022 - Business

Phoenix could soon capitalize on office-to-apartment conversions

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

Office-to-apartment conversions are at an all-time high in the U.S., according to RentCafe. While Phoenix isn't among the top cities, it may be poised to join the growing trend.

State of play: Office buildings are the most popular type of building to convert, representing 40% of conversions from 2020-21, followed by factories (15.5%), hotels (12.8%) and warehouses (9%).

  • Total conversions of buildings to apartments over the past two years has jumped 25% compared with the previous two-year period.
  • Washington, D.C., leads the nation in office and total conversions due to an abundance of vacant downtown office space, while Los Angeles leads in planned conversions.

Why it matters: Phoenix, like many other cities, faces a shortage in apartment housing, which has created an affordability problem.

Zoom in: One Camelback is in the process of switching the former BMO Harris bank building at Central Avenue and Camelback Road into luxury apartments.

  • The 163-unit building is expected to open in the first quarter of 2023.
  • The interior layout is unique due to an atrium in the building's center with an elevator running through it, Dale Phillips, founder of Stellar Properties, the development consultant and leasing management company for One Camelback, tells Axios.

Between the lines: Phillips says that changing office buildings into apartments has two primary benefits: location and parking.

  • The former bank building is in a highly desirable area and starts with five floors of parking.
  • Phillips also says that the cost of the land is cheaper because it's a conversion.
  • "This is such an iconic structure. The commitment to ownership is to maintain an existing structure," he adds.

Yes, but: There can be downsides as well, Phillips said, and the viability of converting versus tearing down a building varies on a case-by-case basis.

  • "You've got to be prepared for surprises. When you deconstruct a building and then you reconstruct it, you're relying on your mechanical, your electrical and your plumbing to be capable of the adaptive reuse. And sometimes it's not," he says.

What we're watching: Phillips says he expects to see the office-to-apartment trend pick up in Phoenix.

  • Buildings that are most ideally suited for the change are in walkable areas with lots of services and amenities.
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