Will People Move Into Transformed Office Buildings En Masse?

High Office Vacancies

One of the biggest issues in America’s housing market is that there aren’t enough units. Demand is far higher than supply. A movement to turn vacant office buildings into apartments could address this persistent housing shortage.

The number of office-to-apartment-units conversions soared 357% between 2021 and early 2024, according to data collected by RentCafe, a nationwide apartment listing service. And there are more in the pipeline.

The trend is not without headwinds: Zoning changes may be needed, and that can require legislation. And then there’s a lot of construction involved.

Even so, the bottom line is that more office space is currently sitting vacant in the United States than at any point since 1979, according to Moody’s Analytics .

With nearly 20% of office space in major U.S. cities not leased as of the fourth quarter of 2023, and some $150 billion in office mortgages coming due in 2024, office-to-home conversions are receiving urgent attention.

Which Cities Are Succeeding?

The cities with the most office-to-apartment conversions in the pipeline are Washington, D.C., New York City, Dallas, Chicago, Los Angeles, and Cleveland.

New York City’s path highlights what’s at stake — and the challenges.

Just over a year ago, New York City Mayor Eric Adams announced an ambitious plan to create as many as 20,000 homes in the next decade through office conversions, enough to house up to 40,000 New Yorkers.

“The need for housing is desperate, and the opportunity offered by underused office space is clear — we know what we need to do,” Mayor Adams said.

But zoning problems are one of the chief obstacles to converting an office building to a residence, along with structural complexities (especially regarding windows and bathrooms) and high project costs.

New York City is the locale of the country’s largest attempted conversion so far: 1,300 apartments in an office tower on Water Street in Lower Manhattan once occupied by J.P. Morgan Chase.

However, the Mayor’s Office has conceded that progress is not going nearly as fast as city planners would like . In the 2023 legislative session, New York State lawmakers didn’t tackle the zoning and other issues that these conversions demand. Pressure will increase for the state lawmakers to address the challenge this year, the New York City Mayor’s office said.

Meanwhile, the Manhattan apartment vacancy rate fell to 2.36% in January 2024, the 17th consecutive month of falling vacancy rates in America’s most densely populated city, according to real estate firm Corcoran.

Finding a Way Forward

As America’s largest cities try to push through these changes, Washington is chiming in, too.

Late last year, the White House announced the creation of new grants to facilitate commercial-to-residential conversions, pointing out that more than one-third of Americans report working from home more frequently now than they did before the pandemic.

And this trend seems unstoppable. Despite some employers’ efforts to lure workers back into the office full-time, the hybrid work environment seems to be here to stay, changing the way we do our jobs and how much office space employers need.

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