Record Number Of Commercial Spaces Converted Into Apartments This Year
Commercial space is being converted to multifamily residential space at a record pace nationwide, according to a new report by RentCafé.
By the end of 2021, about 20,100 units that were previously nonresidential will have become apartments this year, the report notes, roughly twice as many commercial-to-residential conversions as in 2020 and 2019 combined.
Obsolete office buildings are the focus of conversion to apartments more than other property types, according to the report. During 2020 and 2021, 41% of rental apartments created through adaptive reuse were formerly office buildings, adding more than 13,250 new apartments to the market.
Aged industrial facilities and past-their-prime hotels were also popular targets of such redevelopment, representing 4,350 and 3,900 new apartment units, respectively, over the past two years, according to RentCafé.
Not all offices make good candidates for conversion, however. Architectural and engineering firm NORR points out that a feasibility study is necessary to assess the viability of a conversion, including economic, environmental, engineering and market considerations.
The top market for conversions to apartments in the past two years was Washington, D.C., with 1,091 residential units created in three former office buildings. In Alexandria, Virginia, 955 new apartment units have been created from other kinds of buildings over the same period.
The Washington projects include The Wray, a building occupied by the U.S. State Department since the beginning of World War II, but which now features 158 apartments.
Strong demand for apartments in greater Washington and other major metros is driving the trend.
"Park Center is well-located and presents an ideal opportunity to transform the existing property into a mixed-use complex that is designed to meet the evolving demands of renters in Northern Virginia,” Lowe Executive Vice President Mark Rivers said.
Lowe and USAA Real Estate began construction in late 2020 on the conversion of two 14-story office buildings at the Park Center complex in Alexandra, Virginia, into 435 apartments.
Chicago, with 1,020 new apartments via adaptive reuse, and Los Angeles, with 904, were the next most popular markets during 2020-21, RentCafé reports.
Another factor driving the trend is cost.
“One estimate could be that renovations could cost about 30% to 40% less than new construction for the same number of units,” Emil Malizia, a professor in the Department of City & Regional Planning at UNC at Chapel Hill, told RentCafé.