Where Are Office-to-Apartment Conversions Happening—and Why?

New RentCafé research reveals that during the past four years, the number of apartments converted from office space nearly quadrupled—from 12,100 units in 2021 to 55,300 at the start of this year. Out of the total 147,000 rental units stemming from adaptive reuse projects, 38 percent are office-to-residential conversions, the most of any asset class.

A few trends converged for this to happen:

• Office sector woes continue, with lower-quality inventory facing dwindling tenant interest. Plus, there is nearly $150 billion in mortgages on office properties set to mature by the end of this year, and many investors are trying to reduce their exposure to the class.
• Housing demand remains robust, but supply is not keeping up in the longer run, and that’s a nationwide issue. Moody’s Analytics estimates that there is still a deficit of roughly 1.5 to 2 million units.
• The current administration released a guidebook helping stakeholders finance conversions using federal funds, including grants to cover pre-development, acquisition and construction; land disposition permits and a plethora of tax incentives, among others. What’s more, many local administrations have already doubled down on their own office conversion efforts.

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