New RentCafé research reveals that during the past four years, the number of apartments converted from office space nearly quadrupled—from 12,100 units in 2021 to 55,300 at the start of this year. Out of the total 147,000 rental units stemming from adaptive reuse projects, 38 percent are office-to-residential conversions, the most of any asset class.
A few trends converged for this to happen:
- Office sector woes continue, with lower-quality inventory facing dwindling tenant interest. Plus, there is nearly $150 billion in mortgages on office properties set to mature by the end of this year, and many investors are trying to reduce their exposure to the class.
- Housing demand remains robust, but supply is not keeping up in the longer run, and that’s a nationwide issue. Moody’s Analytics estimates that there is still a deficit of roughly 1.5 to 2 million units.
- The current administration released a guidebook helping stakeholders finance conversions using federal funds, including grants to cover pre-development, acquisition and construction; land disposition permits and a plethora of tax incentives, among others. What’s more, many local administrations have already doubled down on their own office conversion efforts.
In other words, the timing seems right for many such adaptive reuse opportunities while developers and investors look to modernize aging assets—the average vintage of buildings undergoing conversion to residential is 72 years.
A few metros stand out when it comes to this. Leveraging Yardi Matrix data, RentCafé highlighted the top 20 cities nationwide spearheading the conversion to multifamily effort, looking at four factors—the total amount of office-to-residential units underway, how much this increased year-over-year, the total amount as a percentage of the metro’s total conversions, and the number of planned future conversions.
Areas where the pipeline is booming
The office-to-apartments pipeline more than doubled year-over-year in two places: Philadelphia and Phoenix.
In Philly, it increased 136 percent, to a total of 975 units to be converted from office space. This amounted to 19 percent of the total share of conversions across the metro. The largest such project is Alterra Property Group’s upcoming 300 apartments at 1701 Market St. The developer acquired the former headquarters of law firm Morgan Lewis & Bockius last year for $25.3 million, Yardi Matrix data shows. The project will reportedly come online by 2025, with plans including one- and two-bedroom units.
Phoenix has also had a significant increase of office-to-apartments projects, up 114 percent year-over-year, to 1,377 units underway at the beginning of 2024. These represented 63 percent of the metro’s total conversion projects. The largest of these is Kierland Sky at 14635 N. Kierland Blvd., which is planned to replace a Class C, 107,421-square-foot office property with 470,900 square feet of residential area encompassing approximately 420 units, according to documents submitted by the private developer in 2022.
D.C., New York, Dallas lead nation in conversions
Conversions in Washington, D.C., also saw a year-over-year boost, growing 88 percent. The nation's capital led the ranking for total units to be created from office properties—5,820, representing a whopping 65 percent of total residential conversions.
Snell Properties plans to develop 732 units at 1820 Fort Myer Drive in Arlington, Va., the largest such project in the area. The former Ames Center will be transformed in two phases. Plans call for two buildings—of 31 and 30 floors—with more than 10,000 square feet of retail, LEED certification and affordable housing, among other features.
The largest conversion project currently underway is in New York. A partnership of GFP Real Estate, Metro Loft Management and Rockwood Capital will convert the 22-story, 1.1 million-square-foot tower at 25 Water St. in Manhattan. In 2022, the trio obtained $535.8 million in acquisition and redevelopment financing for the project, arranged by Newmark. Plans call for 1,300 units with floorplans ranging from studio to four-bedroom options.
Unsurprisingly, New York held a top position, ranking second in terms of office-to-apartments conversion projects. A total of 5,212 units are underway in such developments, making up 45 percent of all residential conversions. New York also had the most future units in planned projects, encompassing 11,485 apartments that might be added to the pipeline.
Dallas followed in the third spot with 3,163 units underway, an increase of 58 percent since last year. The metro also registered a whopping 83 percent of all conversions in office properties, the largest of the top 20 metros analyzed.
Another city with a significant number of office conversions as a share of the total was Cincinnati—81 percent of all such projects were of office assets. In total, Cincinnati had 1,563 units underway and another 1,919 in the planning phases.
Chicago (2,822 units), Los Angeles (2,442) and Cleveland (2,012) also recorded significant pipelines of apartments underway that were part of office adaptive reuse projects.
These developments will likely continue to pop up in other metros as a significant share of new units being delivered, as the use for old office buildings dwindles. Hotels, the second-most impacted sector by the pandemic, came in a close second, with 28 percent of all future conversions to apartments.
