The number of officers converted to residential units has increased by 357% since 2021 as more companies adopted a "work-from-home" model, and office mortgages are set to be due this year.
A new report from ResiClub Analytics, which cited data from RentCafe, found that the United States currently has 55,300 office-to-apartment units ready to be converted. In comparison, there were only 12,100 office-to-residential units ready to be converted in 2021.
Apart from office spaces, other real estate properties are also being converted to residential spaces. This includes 35,000 hotels, 19,000 factories, and 8,000 healthcare buildings.
While the adoption of remote and hybrid work models have left many office spaces unused, RentCafe noted that the office industry's $150 billion mortgages, due this 2024, have pushed developers to convert the empty spaces.
"Behind this shift lies a crucial factor: the $150 billion in office mortgages due by 2024. As residential space demand surges, developers are leaping at the chance to repurpose these aging giants," RentCafe said in the report.
Research group Capital Economics forecasted that the commercial sector may see its breaking point this year due to a 20% peak-to-trough decline in values. This may further be exacerbated as commercial real estate debt worth $2.2 trillion is set to mature by 2027.
Around $541 billion of commercial real estate debts have already matured in 2023, but the fallout from that was muted after many property owners were granted extensions.
"We expect evidence of distress to ramp up this year as loan extensions end. Many borrowers will be forced to either inject new capital, return assets to lenders, or sell into a soft market. Those assets returned to lenders will also ultimately end up on the market, helping bring greater pricing clarity and more substantial valuation markdowns," Capital Economics deputy chief property economist Kiran Raichura said.
Where Will the Conversions Happen?
Among all housing markets in the U.S., Washington, D.C. currently tops the list with the most office-to-apartment units in the pipeline. The capital is currently converting 5,820 office units into residential spaces, representing an 88% year-over-year change.
Following closely is the city of New York, with 5,215 office-to-apartment conversions in the works; Dallas, with 3,163; Chicago, 2,822; and Los Angeles, with 2,442.
Other metro area housing markets with office-to-apartment units ready for conversion include Cleveland, Cincinnati, Kansas City, Atlanta, Phoenix, Minneapolis, Detroit, Columbus, Philadelphia, Seattle, Birmingham, Hartford, Milwaukee, Denver, and Charlotte.
