Office conversions to other property types, especially residential, are being eyed in cities across the country where loss of property tax revenue due to reduced building valuations are motivation to find alternative uses for obsolete office buildings. From 2021 to 2024, the number of residential units being converted from office space has grown from 12,000 to 55,339, according to RentCafe. Only about 23%, or 12,822, of the residential units being added in former offices are expected to be under construction this year. The rest are in the planned stage, with permitting and development work being submitted, or in the prospective stage, with no formal documentation or design started. Cities with older office towers are leading the way with office-to-residential conversions, including Washington, D.C., followed by New York, Dallas, Chicago and Los Angeles. Whether the units in the planned or prospective stages turn into projects under construction likely will hinge on broader economic forces, including what happens with interest rates and the cost of capital, what local and state governments may offer in the way of incentives to make those projects feasible, and a softening apartment market in some areas.
Source: Philadelphia Business Journal; 1/24/2024