By Sander van de Rijdt, Co-CEO, PlanRadar
It’s no secret that America’s office buildings are struggling. The number of people who primarily work from home tripled between 2019 and 2021 amid pandemic shutdowns and lingering health concerns. Across the country, downtown areas remain far quieter than they once were, and defaults and vacancies are climbing at both mid-tier and high-end office buildings. “Any property owner that says ‘Oh we’re fine’ is a little bit fooling themselves,” says Thomas LaSalvia, director of economic research at Moody’s.
What’s the solution? Many developers and urban leaders believe the key to revitalizing downtown areas lies in converting unused office spaces into residential buildings. The appeal of doing so is obvious. Some of the biggest real-estate victories in recent years have involved office-to-residential conversions such as Chicago’s iconic Tribune Tower, and some real estate developers believe there’s now a multibillion-dollar opportunity to replicate such successes at scale.
In global cities like New York, Chicago, and San Francisco — and many smaller towns and cities across the country — politicians are reexamining regulations and tax incentives in the hope of encouraging conversions. But turning office blocks into attractive living spaces is easier said than done. To ride this wave, construction companies will need to go in with clear eyes and a clear plan for managing the complexities of office-to-housing conversions.
Here are 5 key things every company should keep in mind as they enter this exciting space:
With data showing office-to-housing conversions up by 43% since 2019, there will continue to be enormous demand for creative and well-managed conversion projects in coming years. It’s important to remember, though, that an office conversion isn’t simply a question of building some internal dry-walls and dividing up existing spaces into apartments. To succeed in this fast-growing sector, designers, developers, and construction companies will need to put clear processes and digital infrastructure in place to identify suitable properties for conversion, carefully assess the challenges and regulatory requirements associated with the specific project, and keep everyone — from architects to engineers to the guys holding the sledgehammers — on the same page as the project moves forward.
That’s important not just to keep the project on the rails from a logistical standpoint, but also to ensure the strong relationships with local leaders upon which successful conversion projects depend. For high-profile, high-priority projects, local governments want to work with developers and construction firms that understand the intricacies and potential pitfalls that come with office-to-residential conversions, and can move quickly to get the job done.
This will be especially important as downtown office occupancy rates gradually recover and local leaders get pickier about which companies and which conversion projects they support. Getting the right technologies and processes in place now could be the key to winning big contracts and getting governmental buy-in for lucrative conversion opportunities in the months ahead.