Converting office buildings into apartments seems to be on the minds of a lot of developers these days, and a new report confirms it. A study from RentCafe found that the number of office-to-residential conversions has soared over the last two years, jumping 25 percent in 2020-2021, compared to 2018-2019. The conversions brought more than 11,000 new rental apartments to the market across the U.S. The uptick is an even further jump from 2010-2011, when just 2,700 apartment units were created through office-to-residential conversions. According to the report, former office buildings made up 40 percent of all building conversions to apartment rentals between 2020 and 2021.
Three major cities turned out the highest number of conversions between 2020 and 2021: Washington, D.C., Philadelphia, and Chicago. All together, the three cities created 15 percent of the total number of conversions that took place over the last two years. Conversions have become popular in D.C. as the city’s office market has struggled, recently posting the highest vacancy rates in the country. In response, city officials have rolled out a program to incentivize owners to convert their buildings to residential use. Other types of buildings are also getting turned into apartments, including smaller niches like healthcare buildings, which posted the largest growth in conversions to residential during the pandemic. The number of converted healthcare facilities tripled in 2020-2021, increasing 212 percent compared to 2018-2019.
The office-to-residential trend is expected to continue to expand rapidly going forward, with current conversion projects set to create more than 77,000 new rental apartments, with 8,300 created and opened as of July of this year already, according to RentCafe. Office-to-residential conversions have been much discussed with the prevalence of remote work leading to many office buildings struggling with higher vacancy rates. While a lot of buildings are good candidates for conversions, many are not, and the process can be lengthy depending on local rules and regulations, not to mention persistent high construction costs. That is why cities like Calgary have launched plans offering grants and developer incentives that they hope will lead to large numbers of vacant office properties turning into much-needed housing.