Adaptive Reuse Office Conversions to Jump to 20M SF in 2023

 Adaptive reuse office conversions will surge to encompass nearly 20M SF this year, a surge of nearly 75% over the total of 12M SF in 2022 and more than double to 8M SF total in 2021.

Last year’s office conversions totaled 63 projects, of which 42 have been completed and 21 remain under construction, CBRE said, in its latest Adaptive Space report.

Thus far in 2023, a total of 99 office conversions are in the works, including 85 that are underway and 14 in the planning stages.

With the national office vacancy rate average tracking at a 30-year high of nearly 19% at the end of 2022, a housing crisis that has many metro areas encouraging office-to-apartment conversions—and long-term forecasts calling for structurally higher post-pandemic office vacancy—owners of older office buildings unable to compete with the flight to quality increasingly are exploring adaptive reuse option, CBRE said.

“Owners of older office buildings without the amenities that today’s tenants need to lure their employees back to the workplace may be better off converting them to other uses,” CBRE’s report said.

Office conversions are concentrated in coastal and northeast markets with relatively older office stock. San Diego, Boston, Manhattan, Cleveland and Philadelphia have the most completed conversions since 2016, CBRE reported.

As of the beginning of this year, Boston and the Bay Area had the most underway. Dallas has several planned and announced projects totaling nearly 6M SF, CBRE said.

Office-to-apartment conversions are expected to drive the surge in adaptive reuse projects, as cities looked to older office inventory to fill the gap between housing demand and supply.

The most aggressive office-to-multifamily push in the nation was initiated earlier this month by NYC Mayor Eric Adams, who in his second State of the City address put forward a recommendation from a city task force to rezone a wide swath of Manhattan—an area from W. 23^rd to W. 41^st streets—to erase zoning restrictions that limit uses to offices or manufacturing, allowing dozens of aging office buildings to be converted into apartments.

The NYC mayor estimates that the area—which stretches from Chelsea up through the Garment District—can yield 20,000 housing units, making a significant contribution to Adams’ “Moonshot” plan to build 500,000 new housing units in NYC in the coming decade.

The task force issued a report, entitled the NYC Office Adaptive Reuse Study, which made a series of recommendations that Adams is aiming to enact to facilitate widespread office conversions to apartments in NYC.

The study recommends that NYC allow office buildings built before 1990 access to the most flexible regulations for conversion to residential use, which will require a change to New York State’s Multiple Dwelling Law as well as NYC’s Zoning Regulation.

The task force said this change would provide “an easier path to conversion” to office buildings encompassing 120M SF in NYC. The study also recommended expanding access to the most flexible conversion regulations to all high-intensity office districts, GlobeSt. reported.

Currently, the most flexible rules only apply to the city’s largest business district—a change the study said would allow about 16M SF of old offices in Downtown Flushing and the Bronx Hub to be converted.