This chic place you are renting probably used to be an office space.
- Between 2020 and 2021, developers converted more old buildings into rental apartments than ever before.
- The developers are targeting a range of building types, from office buildings to churches.
- Increasing home office and hybrid options are driving the trend.
Developers are converting old buildings into new apartments at a record pace as working from home becomes permanent, according to a new report from RentCafe.
In total, developers created 28,000 new homes from old and underutilized buildings between 2020 and 2021, the report said. That’s a 25% increase from the more than 22,300 home developers remodeling between 2018 and 2019 before the pandemic.
The study analyzed conversions of buildings with at least 50 apartments and used market data from RentCafe’s sister company, Yardi Matrix.
“Not all buildings are equally threatened by the work-from-home revolution,” Doug Ressler, business intelligence manager at Yardi Matrix, said in a statement. “Larger office buildings in abandoned central business districts lend themselves better to repurposing than the often smaller office complexes dotted around the suburbs.”
This type of conversion — also known as adaptive reuse — became en vogue during the pandemic Interest rates and building material prices rose. Now that the pandemic has entered its third winter, developers are looking at residential conversions as a way to “revitalize office buildings” and meet rising demand for housing, the report says.
Major cities like Philadelphia, Cleveland and Pittsburgh have been hotbeds for such conversion projects because they have many old buildings and unused office space, the report adds. Overall, developers in these cities have remodeled more than 3,200 homes, or 11% of the statewide total, the report said.
Local governments have followed the trend by providing incentives for conversion projects. For example, in late September, California Gov. Gavin Newsom signed two bills into law allowing developers circumvent local regulations possibly to construct living space on commercial land. Chicago’s city planners also presented an initiative in September Converting vacant office space along LaSalle Street in the central business district in residential units.
“The housing market needs significantly more density in the areas of the largest cities, where demand is greatest and where the tallest office buildings are,” Ressler said.
Developers aren’t just targeting offices for conversions, as warehouses, hotels, and factories account for 37.3% of the building types developers are targeting for conversions, according to the report.
Emily Hubbard, co-founder of Sage Investment Group, a real estate investment firm that undertakes multi-family home renovations and conversions, Insider said in September that remodeling projects are attractive because they can be completed quickly and are often cheaper than building from scratch.
Sage recently spent $14.2 million to acquire an Econo Lodge and a Travel Lodge in Tacoma, Washington to convert from extended-stay hotels to low-income lodging among other conversion projects in Sage’s portfolio.
The RentCafe report estimates that over 77,000 homes will be completed after 2022, with hotels accounting for 22% of the total.
Hubbard adds that housing needs across the country will continue to drive demand for remodeling.
“It’s on everyone’s lips,” she said.