As companies assess their office needs and the impact work from home strategies have on those needs, there has been a trend toward smaller spaces, in turn leaving some office buildings and corporate centers with historic vacancy. This change comes at an opportune time, with the demand for housing skyrocketing over the last few years. Conversion projects, specifically converting commercial office properties to residential spaces, have gained traction since the approach maximizes the use of existing infrastructure and also offers a solution to the pressing need for more affordable and attainable housing throughout the US. Additionally, these projects help maintain the value of the real estate for owners and create a positive economic impact on urban areas due to the boost in population density and increased need for daily goods and services necessary for residential living.
While elevated office vacancy rates have created a prime market for residential conversions, not every commercial office building is suitable for conversion. A number of factors need to be considered for a successful conversion, including location, existing infrastructure, project design, and funding. We took some time to explore the benefits, challenges, and considerations of converting commercial properties to residential to better understand what is needed for a viable conversion.
Benefits
Addresses Housing Needs
The conversion of commercial properties to residential spaces presents a unique opportunity. Projects like this can maintain the value of a building for its ownership, effectively getting rent for space that formerly held office tenants. The trend also addresses the housing crisis in urban areas. By repurposing underutilized or vacant commercial office buildings, developers can create much-needed housing options without the need for new construction. This approach not only maximizes the efficient use of existing infrastructure but also helps revitalize areas through accessible and affordable housing.
Meeting the housing demands through commercial property conversions can also have a positive impact on the local economy. Revitalization often attracts businesses, restaurants, and other amenities, leading to increased economic activity. Additionally, the construction associated with these conversions creates jobs and stimulates economic growth.
Maintains Historical and Architectural Integrity
Many commercial properties are architecturally and historically significant, adding character and charm to the urban landscape. By converting these buildings into residential spaces, unique features are preserved while repurposing them to meet modern living standards. Restoring or designing around these features can give the residential space additional appeal that draws tenants to the building. This blend of old and new not only enhances the aesthetic appeal of the area, but also contributes to its cultural identity and sense of community. The preservation of architectural heritage in turn creates vibrant neighborhoods that blend history with modern living.
In Buffalo, NY several historic buildings have undergone a conversion from office to residential. Tax credit incentives played a large role in these successful conversions and the collective effort helped to stabilize the downtown core and it’s architectural gems. The project boasts spacious loft-style, market-rate units, designed to create a community-focused residential experience, with a variety of public green spaces, unique floor plans, and original industrial finishes.
Environmental and Economic Impact
While there is clear value in a building’s historical significance, commercial to residential conversions also provide value through sustainable development. Reusing existing buildings results in a lower carbon footprint by using existing infrastructure, directly impacting the local environment and reducing the need for new construction. Additionally, converting office spaces to residential units can lead to reduced energy consumption, as residential buildings generally have lower energy needs compared to commercial office buildings. By adopting eco-friendly practices and promoting responsible resource management, the conversion of a commercial office building into residential units can become a sustainable contribution to the local community and a step toward a greener, more resilient neighborhood.
Converting commercial properties to residential can also have positive economic impacts by stimulating local economies through increased business activity and job creation. The process of converting the building requires skilled labor, including architects, engineers, construction workers, and contractors, thereby providing employment opportunities in the construction and technology industries. Additionally, the new residential units may attract residents who, in turn, contribute to the local economy through increased spending on goods, services, and entertainment in the surrounding area.
Furthermore, the transformation of underutilized office spaces into residential units can lead to an increase in property values and tax revenues for the municipality. As more people move into the area, demand for housing continues to rise, potentially boosting property prices and generating additional property tax revenue for local governments. This, in turn, can provide funding for public services and infrastructure improvements, benefiting the community and local economy as a whole.
Challenges
Location
According to an analysis from the global architecture and design firm, Gensler, only about 30% of North American office buildings are viable conversion candidates. The buildings that shake out to be the best candidates for conversion tend to be older, mid-rise buildings that are near, but not directly within, a city’s financial core. Office buildings within a central business district may not be in proximity to retail and services needed to support a residential population such as grocery stores, childcare, retail for home goods and improvements, or others that may not exist in the immediate area.
To mitigate this concern, urban revitalization should prioritize a city’s downtown core as a place of diverse destinations to promote foot traffic throughout the week, which has seen as sharp decline as remote work has remained post-pandemic. Office-to-residential conversions can be seen as a strategic tool to enhance downtown neighborhoods and support the office market.
Adapting Existing Infrastructure
CBRE recently reported that US office stock built before 1980 is at a 17% vacancy rate, making the buildings prime candidates for conversion into multi-family residential units. However, for these buildings to be viable for reuse, two major systems must be assessed for modifications. HVAC and plumbing systems are often strategically outfitted for office buildings and will need to be adapted for residential users, adding a challenge when considering a possible conversion.
Plumbing is also likely centralized in an office building’s core and would need to be distributed to individual units for housing. While the communal facilities are attractive for office or commercial use, these layouts need to be completely revamped to best meet residential users. These modifications can come with high price tags and should be heavily considered when assessing a building’s conversion financial feasibility.
Design
Converting a commercial property into residential often presents technical and design challenges. Commercial buildings may have unique layouts, large open spaces, or unconventional features that require creative solutions to optimize them for residential use. Balancing the preservation of architectural elements with the need for modern amenities and functionality can be a complex task that may require the expertise of architects, engineers, and interior designers.
Project Funding
Commercial to residential building conversions can be a costly endeavor. In many cases, city governments are offering incentives for conversions to address the need for housing. Building owners apply for a reduction in property taxes, in return for converting their buildings into residences.
Other Considerations
Before embarking on a commercial to residential conversion project, it is essential to thoroughly understand the building codes and regulations governing such transformations. Each city or town may have specific requirements regarding safety, accessibility, and zoning, which must be met to ensure compliance. Demand for housing and overall project feasibility are also indicators of future success and should be studied.
Obtaining Necessary Permits and Approvals
Converting a commercial property to residential typically requires obtaining various permits and approvals from local authorities. These may include permits for construction, changes in land use, occupancy, and compliance with safety and accessibility standards. It is essential to work closely with the appropriate government agencies to secure all necessary permits and approvals before commencing the conversion project and ensure that the design aligns with residential building codes and regulations.
Marketing Demand and Feasibility
Before initiating a commercial to residential conversion, conducting a comprehensive market analysis is essential to assess the demand for housing in the target area, including factors such as demographics, rental rates, and property value trends. Understanding the feasibility and potential return on investment will help determine the viability of the project and guide decision-making throughout the conversion process. Engaging professionals such as architects, engineers, and real estate experts can provide valuable insights during this stage.
The conversion of commercial properties to residential spaces presents an innovative and sustainable approach to address the housing crisis and transform urban living. By repurposing underutilized or vacant buildings, developers can create much-needed housing options while preserving architectural heritage, revitalizing urban areas, and maintaining the value of their assets. Although challenges exist, careful planning, market analysis, and collaboration with professionals can ensure successful conversions.