5 US Cities are ideal for converting offices to homes

According to an Urban Institute report released on June 5, the San Francisco Bay Area, Seattle, Phoenix, Atlanta, and Denver are the cities and areas that stand to gain the most from converting vacant office buildings into homes.

In the report, Urban Institute Research Associate Jorge González-Hermoso states that “cities experiencing both acute distress in their office real estate market and a significant need to increase their housing supply have the most to gain from intensifying their efforts to enable and ease office-to-residential conversions.”

By authorizing more flexible land use, modernizing building rules, expediting the permitting process, and providing tax credits or property tax abatement, he pushed these cities to support adaptive reuse.

Deep Dive:

After work-from-home rules brought on by the pandemic caused major losses in daytime activity in many downtowns, the idea of converting offices into residences became popular. Adaptive reuse initiatives have now been pursued by cities all around the country. Last year, the White House provided funding and technical support to the initiative.

According to an analysis by the Urban Institute, many business buildings feature layouts that make it challenging to convert them into homes. González-Hermoso argues, “The pipeline of office-to-residential conversions remains strong despite these challenges.”

A RentCafe report from March 2024 states that between 2021 and 2024, the office-to-apartment conversion pipeline more than doubled. According to RentCafe, the tendency is particularly noticeable in Dallas, New York City, and Washington, D.C.

Metrics including office vacancy rates, changes in office asking rent over the past year, housing vacancy rates, and the rate of change in gross median rents over the previous ten years are all taken into consideration in the Urban Institute’s research. González-Hermoso notes that he excluded New York City from the analysis due to the difficulty in matching the city’s office market statistics with the federal housing data he examined.

He added, “It is not surprising that the majority of the top-ranked cities have high levels of both office distress and housing supply need.” “But exceptions do exist.”

For instance, San Francisco is one of the locations the report claims could gain most from conversions despite having what it deems a stable housing supply due to its notoriously troubled office market.

González-Hermoso’s recommendations have already been implemented in a few states and cities. For instance, municipal governments in California are mandated by law to expedite the consideration of plans for adaptive reuse projects. Another California rule that went into effect last year permits the construction of homes in places that are normally used for commerce as long as certain requirements are met; local governments with good cause may, however, still forbid this in specific locations.

González-Hermoso states, “Office conversions will not be the sole answer to our housing crisis, nor will any other policy in isolation.” “However, conversions provide a useful approach for small, gradual changes in our cities.”