The number of apartment spaces being created in office buildings across major cities this year has risen to over 55,000, four times higher than the 12,100 under conversion in 2021, according to a new report.
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The 55,339 office-to-apartment makeovers scheduled for this year mark a record high, according to the RentCafe report released Monday. The report cites surging demand for residential space and nearly $150B in office mortgages coming due this year as driving forces behind the trend.
The number of units under conversion to apartments in former office spaces has steadily increased over the past four years, coming in at 23,100 units in 2022 and 45,200 in 2023, according to RentCafe.
Looking forward, about 147,000 apartments are on the way in future adaptive reuse projects, the report states. Office buildings make up the largest share of buildings being converted, at 38%. Hotel buildings follow, making up 24% of apartment conversions.
Washington, D.C., has the largest number of units under conversion from offices this year, at 5,820, the report shows. This is an 88% increase from the year prior, and there are another 9,021 future conversions planned, according to the report. Office-to-residential conversions are a key pillar of D.C. Mayor Muriel Bowser’s effort to liven up the city’s central business district and add 15,000 residents to the area by 2028.
New York City is next in line, with 5,215 apartments under conversion from offices, followed by Dallas at 3,163, Chicago at 2,822 and Los Angeles at 2,442.
New York is slated to see several high-profile conversions, including at 25 Water St. and the iconic Flatiron Building. Also in New York, a 113K SF office tower near Penn Station is being considered for a residential conversion.
In the Dallas-Fort Worth metro, researchers last year identified more than 50 buildings that could be converted to residential, including downtown high rises and older, suburban office properties.
“[Conversion] paves the way for restoring asset values and tax revenues, alleviating housing shortages, and meeting climate goals, while mitigating the negative externalities of vacant offices,” that report said.
The average age of office buildings being transformed into rentals this year is 72 years, which is about 20 years younger than those previously converted prior to 2021, according to RentCafe.
U.S. office vacancy has already broken an all-time record this year, with about 19.6% of office space in major U.S. metros sitting vacant at the end of 2023, up from the previous record of 19.3% reached in 1986 and 1991.
The increase in office-to-residential conversions is “a testament to how our cities are transforming for a new generation that wants to live where they used to work,” the RentCafe report states.
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