Pandemic period adoption of work-from-home and hybrid work fashions has left many workplace areas unused, triggering a surge in expired leases and vacant workplace buildings. Concurrently, the residential housing market stays resilient, with active homes for sale in January 2024 sitting 40% below the degrees recorded in January 2019.
It could solely make sense that many of those places of work over time get transformed into condos and flats, proper?
To achieve a complete understanding of the present office-to-apartment conversions panorama, ResiClub turned to RentCafe, an arm of property administration software program big Yardi Methods.
The discovering? Getting into 2021, there have been 12,100 office-to-apartment models within the U.S. conversion pipeline. Quick-forward to 2024, and that determine is now 55,300—a rise of 357% in simply three years.
“Behind this shift lies a vital issue: the $150 billion in workplace mortgages due by 2024. As residential house demand surges, builders are leaping on the probability to repurpose these getting older giants,” wrote RentCafe in its newest report.
Based on RentCafe, the office-to-apartment unit pipeline (55,300) makes up 38% of the 147,000 models at the moment being transformed from industrial properties into condo models. It’s adopted by hotel-to-apartment (24%), factory-to-apartment (13%), and healthcare building-to-apartment (6%).
The largest chunk of this 55,300 office-to-apartment unit pipeline might be present in Washington, D.C. (5,820).
Not too far behind is New York (5,215), Dallas (3,163), Chicago (2,822), and Los Angeles (2,442).
From a big-picture perspective, the 55,300 office-to-residential conversion pipeline won’t be as important because it seems at first look.
Look no additional than 25 Water Street, a 22-story former workplace constructing in Manhattan’s Monetary District, which is being transformed into 1,263 housing models. This one workplace conversion makes up 24.2% of New York Metropolis’s conversion pipeline and a pair of.3% of the U.S. conversion pipeline.
The 25 Water Avenue constructing totals 1.1 million sq. ft. For perspective, there’s 96 million square feet of office real estate available for lease in New York City alone.
Why aren’t there extra office-to-residential conversions proper now?
Industrial buildings will not be designed or constructed with residential dwelling in thoughts. Changing workplace areas into comfy and useful flats might require important structural adjustments, reminiscent of including home windows, air flow, or modifying ground plans. Whereas office-to-residential conversions can typically be carried out quicker, they regularly value extra than simply constructing a brand new constructing.
Moreover, whereas for-sale housing stock stays tight nationally, it has been somewhat softer within the very locations which have probably the most empty places of work. To not point out, there’s an enormous amount of multifamily supply coming onto the market this year, significantly in Solar Belt markets.
The massive image discovering: The overarching discovery is that whereas the conversion of workplace areas into residential models is gaining momentum, it nonetheless stays a small phase of the residential housing market.
