A record number of aging office buildings are set to be converted into apartment units this year as commercial real estate properties struggle to find tenants due to the remote work trend.
This year, developers are set to create 55,339 apartment units from office buildings, according to a study published Monday from apartment listing service RentCafe. The number of units under conversion to apartments in former office buildings has quadrupled since 2021, when there were only 12,100 office-to-apartment makeovers.
Office buildings, which make up 39% of conversions this year, are not the only commercial real estate properties expected to be repurposed into residential spaces. At least 24% of hotel buildings, 13% of factories, and 6% of healthcare buildings will also be converted, the study found.
The report cited surging demand for residential spaces and nearly $150 billion in office mortgage due this year as the main driving force behind the planned conversions.
Where Will the Office-To-Apartment Conversions Occur?
Leading the charge is the nation's capital, Washington, D.C. The metropolitan area will see 65% of its office spaces converted into 5,820 apartment units this year. Conversions are part of D.C. Mayor Muriel Bowser's initiative to increase the area's population by 15,000 by 2028.
Following the nation's capital is the metro area of New York, which is expected to see 5,215 apartments under conversion from offices. The city kicked off its "Office Conversion Accelerator" program in August, which is expected to create more than 2,100 housing units. In mid-January, the city added 46 more office buildings to the project. Additionally, there is the makeover of 25 Water Street in Manhattan-previously served as an outpost for JPMorgan & Chase Co-that is expected to bring in 1,263 apartment units.
Third in line is the Dallas metro area, which will see 3,163 office-to-apartment conversions this year. The city has seen a growth in employment last year, adding 140,000 jobs in November 2023.
Office vacancy rates in the U.S. broke an all-time record last year, with 19.6% of all spaces remaining vacant in the last quarter of 2023. It was the highest office vacancy rate recorded in the country since 1979.
