Aug 12, 2023 - Real Estate

Office to apartment conversions hit roadblocks in D.C.

Illustration of a hand holding a key surrounded by abstract shapes.

Illustration: Maura Losch/Axios

Converting empty D.C. buildings into apartments could bring more people downtown, but reimagining the spaces isn't easy.

Why it matters: D.C. and many cities across the nation are scrambling to revitalize downtowns in a post-pandemic world by turning underutilized office and hotel buildings into apartments.

Driving the news: Downtown D.C. foot traffic is at 75.5% of pre-pandemic 2019 levels, Axios' Alex Fitzpatrick and Kavya Beheraj report.

By the numbers: Sixteen downtown office-to-residential projects have been announced since 2020. Now, half of those are on pause, per DowntownDC BID data.

  • A quarter of the 16 projects are in progress.
  • The downtown economy is at 65% pre-pandemic levels, according to figures provided by the DowntownDC Business Improvement.
  • "Lackluster return-to-office numbers" and record-setting retail and office vacancy rates are largely to blame, according to Braulio Agnese of DowntownDC BID.

What's happening: Construction costs are still on the rise and securing financing is near-impossible right now. "Without the tax incentives, the economics don't work," says D.C. developer Oliver Carr.

What they're saying: "When you look at converting office to residential, most buildings don't work," Carr says.

  • This is largely due to a lack of windows, he says. Cutting into the building to add "light wells" is difficult and expensive.
  • Older buildings on the edge of residential areas like Dupont and Logan Circle are prime candidates for conversion.

The intrigue: Apartment dwellers, and companies looking for office space, want top-notch amenities and concierge services, within walking distance to restaurants, retail and coffee shops, Carr says.

  • "I think what's really going to happen is those buildings will get rebuilt as residential with perfect layouts, perfect amenities," Carr says.

Yes, but: Projects that secured financing before the banks tightened up are winning.

  • Elle, a mixed-use project taking the place of the old Peace Corps headquarters, is right on track, Gary Cohen, chair of the development firm Willco, tells Axios.
  • The building will have 163 apartments and 8,000 square feet of retail space, opening June 2024, he says.

What we're watching: The trend is poised to grow as more cities roll out programs to incentivize conversion projects, according to Steven Paynter at Gensler, a global design and architecture firm.

  • D.C. ranks No. 7 among the top 10 cities with the most future office conversions, according to figures shared by RentCafe.

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