Real estate developers want offices to feel more like home – in the truest sense of the word. In 2020 and 2021, 41% of apartment conversions or the conversion of an existing non-residential building into apartments were made from old office space, according to a report by the apartment search website RentCafe.
That is around 13,250 new rental units that were built from ex-offices in the last two years. It is a form of adaptive reuse or repurposing an existing building for something new.
The numbers represent a trend that has spanned the past decade, says Tracy Hadden Loh, a Brookings Metro scholar who researches commercial real estate. Companies have been allocating fewer square feet per employee for years, she tells CNBC Make It, as workplaces swap private offices for open floor plans. While employers consolidate their offices, builders vie for new tenants – sometimes that also means vying for tenants.
The trend could accelerate as remote working moves into the post-pandemic world, companies need to shrink their physical footprint even further, and real estate developers figure out how to transform their spaces into something people want to inhabit.
Nearly two years after the pandemic, office vacancy rates remain high in many major U.S. cities, and nearly a third of executives believe they will need less overall office space over the next three years due to remote working, according to a PwC survey .
Former office space is expected to make up a quarter of the converted apartments as early as 2022 and around 12,300 rental units will come onto the market.
Office buildings offer another decisive advantage that makes them attractive for an apartment renovation: their location.
Cities with large office markets tend to have fewer apartments nearby, explains Loh; Business districts are now centrally located and easily accessible in terms of design, which makes them lucrative real estate. Developers could have a high incentive to convert expensive and unused office space into expensive and sought-after housing.
In total, a record 20,100 home conversions are expected this year, a total of 32,000 converted units since the beginning of 2020, according to the RentCafe report and based on data from sister company Yardi Matrix, a commercial property research company.
The practice of converting commercial space into rental apartments has skyrocketed over the past decade, according to RentCafe, with only 5,300 apartments being converted in 2010. Hotels and factories were the top conversion spaces in the 2010s, although office remodeling could be the next big trend in terms of customization and reuse well into the 2020s.
Compared to demolition and rebuilding, adaptive reuse can have a lower environmental impact, cost less money, take less time, and address a range of housing affordability issues in some of the most congested and expensive cities in the United States
So far, Philadelphia and Washington, DC have converted most of the new housing units from old buildings in 2020 and 2021, while Los Angeles and Cleveland have the most projects as of 2022.
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