According to RentCafe's new report, conversions of office buildings to apartment units are increasing. They hit a peak last year and are expected to continue growing.
Why it is important: America suffered from a housing shortfall long before the pandemic, which drove demand for larger living areas. Conversions can be a way to address the problem, particularly if there is still low occupancy in office buildings.
By numbers:The total number of apartment conversions in 2020-2021 — which includes those of warehouses and hotels — increased 25% compared to the two-year period prior to the pandemic. RentCafe reports that this figure is about 28,000 units.
- It analysed data from Yardi Matrix, a commercial intelligence service for real estate.
- The most significant increase in office building conversions was 43% to 11,090 units. They account for the majority of conversions.
- Looking ahead: 77,000 apartment renovations are in progress, RentCafe states. This will set the stage for a boom over the next few decades.
Be smart The potential conversion wave caused the pandemic and the empty offices it created is unlikely to be reflected in the 2021 data.
- Long-term office lease cancellations will take years to get through the system.
- Conversions can be costly — often more expensive than new buildings — as well as requiring zoning and regulatory approvals.
What are we watching? Cities like New York, Los Angeles, and Chicago are now actively proposing plans that relax building regulations and provide tax breaks to encourage property owners to convert.
- Officials believe that this will create much-needed housing and transform half-vacant downtown business districts to more vibrant live-and-work areas.
The bottom line is These incentives, if they are realized, could drive these conversion numbers higher.
Originally published on Axios.com