Record volume of office-to-apartment conversions is in the pipeline. How many will become reality?

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Between 2021 and 2024, the number of apartments scheduled for conversion from office space has grown from 12,100 to 55,339, according to RentCafe, part of Yardi Systems Inc. That means office conversions represent 38% of the estimated 147,000 apartments in adaptive-reuse projects.

But among the 55,000-plus units included in the findings, only 23%, or 12,842, of the residential units being added in former offices are expected to be under construction this year. The rest remain in either the “planned” stage — where permitting and development work has been submitted — or the “prospective” stage, where no formal documentation or design has begun yet.

Doug Ressler, manager of business intelligence at Yardi Matrix, said sellers are starting to recognize reality when it comes to whether to hold or sell certain buildings, including ones that might make sense for a conversion.

Whether the 42,497 units nationally in the planned or prospective stages turn into projects under construction likely will hinge on broader economic forces, including what happens with interest rates and the cost of capital, as well as what local and state governments may offer in the way of incentives to make those projects feasible.

Municipalities are motivated to figure out a solution for the obsolete office buildings sitting vacant in their downtowns, particularly because of the hit those reduced building valuations — and taxes — will have on local government revenue. That’s prompting cities, states and even the federal government to introduce both financial subsidies to reduce the overall cost of conversions as well as reforms to land-use and other policies to reduce regulatory barriers.

https://www.bizjournals.com/cincinnati/news/2024/01/24/office-apartment-conversions-planned-record.html

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