While the U.S. housing market is still falling short by 4–5 million properties, the office-to-apartment conversion industry is making a little headway to help alleviate the problem. This year alone, a record-breaking 70,700 apartments are expected to be created from vacant office space nationwide.
Not surprisingly, the New York metropolitan area leads the nation in office-to-apartment conversions in the pipeline for 2025, with 8,310 units planned. Washington, D.C., which held the top spot last year, has 6,533 conversions planned, and Los Angeles has 4,388 units. Chicago and Dallas round out the top five, with 3,606 and 2,725, respectively.
Doug Ressler, business intelligence manager with Yardi Matrix, told The Epoch Times that these vacancies have given birth to a burgeoning industry of repurposing offices and other commercial properties into residential spaces, catering to the evolving lifestyles and priorities of America’s cities.
“There’s been a growing change from the 1980s and 1990s, when office buildings were the primary staple of commercial real estate,” he said.
“For the past few years, there’s been a glut of office buildings, and we’ve reached a saturation point. Because demolition is often too costly, building owners are converting the property to residential, as the need for more housing continues.”
Because a lot of office inventory is no longer needed, owing to the prevalence of remote working or changing business needs, commercial real estate is making a comeback with many new adaptive reuse projects.
“Many people are now also looking for transit-oriented properties that offer them another solution to the expenses of a vehicle and insurance,” Ressler said.
The RentCafe report indicates the bulk of today’s commercial conversions (42 percent) are office buildings, followed by hotels (22 percent), factories (11 percent), and warehouses (6 percent).
“Hotels were impacted by business travel, which hasn’t come back to the levels it once enjoyed,” added Ressler. “While leisure travel has returned, some hotels are still feeling the pinch of lost revenue, and building owners have opted to modify their properties to apartments. These tend to be the most cost-effective conversions with little modifications.”
Ressler noted that hotel conversions have included everything from smaller motels to luxury, five-star hotels. Some located near universities have been converted into student housing.
New York City’s share of office-to-apartment conversions this year is 53 percent, with the total amount of office space suitable for residential conversion at 305.4 million square feet. New York is also home to the nation’s largest office market with more than 730 million square feet of space. Manhattan alone offers 80 percent of the city’s office space.
RentCafe noted the planned transformation of the former Pfizer global headquarters, which is slated to offer 536 rental units. In suburban Westchester County, just north of Manhattan, similar projects targeted underused office buildings in White Plains, adapting them to house almost 200 rental units.
“Sometimes these office conversions can actually be more expensive in suburban areas,” Gary Klein, regional manager of Houlihan Lawrence Commercial Division in Rye Brook, New York, told The Epoch Times.
“New York City’s tall buildings have a smaller footprint, making renovations less complicated than suburban buildings with fewer floors, but covering much more land.”
Klein also noted that rents skew much higher in Manhattan, which could offer a quicker return on investment for building owners. He believes these conversions can actually help to save downtown areas.
“It’s important to bring in residentials to activate the street,” he said. “Without enough people, retailers die, and a vibrant downtown could become a ghost town.”
Just across the Hudson River, he said, Newark, New Jersey, has experienced a lot of industrial conversions from warehouses or other industrial buildings. The typical loft-type apartments often attract millennials and Generation Z renters.
In Washington, D.C., one of the biggest developments for 2025 is the Universal Buildings project on Connecticut Avenue, which will transform more than 1 million square feet of office space into The Geneva residential complex with 525 new units.
Office conversions in Los Angeles comprise an almost 50 percent share of the city’s adaptive reuse projects. More than 83 million square feet of office space has been deemed suitable for renovations. The new ARCO Tower redevelopment will transform a 33-story office tower into 691 new apartments.
One major Chicago project is 30 N LaSalle St., where 432,000 square feet of space will be revamped into 432 new apartments, and in Dallas, a 1.1 million square-foot glass tower will be reconfigured into 425 new apartments. Atlanta, Minneapolis, Charlotte, Cincinnati, and Kansas City complete the top 10 U.S. cities for new office-to-residential apartments.
Regionally, the South leads the nation in this trend, with more than 22,000 projects, followed by the Northeast and Midwest with more than 18,000 redevelopments. The West has the fewest, with just 12,291.
For those about to occupy these new types of residences, Ressler said the younger the demographic, the more attractive these unique properties become to them.
“A lot of younger people fresh out of college are leaving home for the first time and have a different mindset,” he said. “They like a lot of modern amenities like smart homes, gyms, pools, community rooms, rooftop decks, and social engagement. Plus, they value proximity to transportation and convenience retail.”
As for affordable rental options, the report indicates most of the planned conversion developments will be offering a percentage of affordable units for those who qualify financially. “There is also a large amount of supply coming, so developers have to be competitive to be able to retain renters,” he said.
