Most conversions are to multifamily units, driven by that sector’s stronger fundamentals, CBRE said. In addition, many cities are easing regulations and offering incentives for these types of transformations in an attempt to address housing shortages and increase property tax revenues. More than 28,500 housing units have been delivered via office-to-multifamily conversions since 2018, with 43,500 more expected if planned projects proceed.

Office conversions to life sciences were the second most common type during the pandemic, especially with new lab construction falling behind demand. However, hotels are now the second most common office conversion type, representing 8% of projects by square footage.

Manhattan and Washington, D.C., lead the country in planned and underway office conversions by square footage, with 10.3 million and 9.2 million square feet, respectively. Activity in these markets is driven in part by market size, but also by municipal programs encouraging conversions.

In Cleveland, 8.4% of its office inventory is undergoing or planned for re-use, the highest share of any city in the country. The metro has a long-standing reputation for repurposing underperforming office buildings due to high construction costs, low office rents and limited land availability.

Meanwhile, CBRE cautioned that not all buildings are suitable for conversion. For example, many of these properties were constructed in the 1970s and 1980s and have large floor plates that don’t work well for multifamily units. As such, only 35% of older buildings are slated for conversions, while more than half are expected to be demolished. Buildings with distinctive architectural features are more often selected for transformation, the report said.