Office buildings are in a glut, and residential units are needed by the millions, but is it practical to repurpose office buildings into residential apartments?

Goldman Sachs attributes rising office vacancy rates to the continued impact of remote work, a strategy initially adopted during the 2020 pandemic and still widely used today. The firm reports a national office vacancy rate of 13.5%, the highest it’s been since 2000, and expects that number to rise even more as many office tenants are still locked into leases and will either allow their leases to expire, downsize to smaller suites, or migrate to newer buildings. Buildings that are more than 30 years old, with no renovations since 2000, and a vacancy rate higher than 30% are considered non-viable, but currently only 4% of U.S. office buildings fit that definition.

Meanwhile, CREtech puts national office vacancy rates at 20.4% and notes that office-backed debt is at an all-time high. In 2024, developers broke ground on only 14 million square feet of new office space, which is driving up rents and causing a “flight to quality” toward new construction.

Before the pandemic, only 0.4% of office space was converted into residential units, but in 2023, the needle moved slightly to an annual conversion rate of 0.5%. Researchers estimate that conversion rates to multifamily housing will rise to 0.6% in 2026, and to 0.7% in 2028. But these numbers are so small that the conversions will only create approximately 20,000 residential units per year, unless federal or local governments provide subsidies to increase the number.

The reasons for low conversion rates are many. Converting unused office space into residential use is expensive and many building owners don’t have the resources or the appetite for risk to renovate their properties to compete with new office construction, much less go through the expense of permits and variances, meeting residential building codes, rewiring and plumbing, and providing amenities for residents like swimming pools and fitness centers, not to mention lead paint, radon, and asbestos abatement—all without knowing how much their conversions will appeal to renters and homeowners. 

Office buildings are usually divided into tiers, so that tenants can compare and choose the space most suitable for their operations, budget, and business image. Investors and developers use tiers to compare opportunities and evaluate market demand, property value, the length of leases, and the appropriate rents to charge. CREtech classifies these tiers as:

Class A – Premium-grade office buildings with top-tier amenities and infrastructure.

Class B – Mid-grade office buildings with a balance between cost and quality.

Class C – Budget-friendly office buildings with basic facilities and fewer amenities.

There’s a growing divide between Class A office buildings and older buildings, as Class A buildings tend to be built new on empty lots, rather than retrofitted, which is making older buildings less attractive and viable. Brookings.edu maintains that office work is 22% more dense in the 10 largest office markets since 1990, yet, in many cities, including New York, Los Angeles, and Dallas, office space is half-empty, while in other areas like downtown Salt Lake City, office use is growing. If hybrid remote work becomes the norm, most employers will still need office space for remote workers to come in a few times a week to interact with management and other workers and to use in-office amenities. 

So what would it take to make older office buildings viable again with residential housing? One suggestion is mixed use, an idea successfully employed in Tulsa, Oklahoma. Boasting one of the largest downtown districts of Art Deco buildings built during the oil boom by famous oil barons, developers have renovated the upper floors for residential use while small businesses like restaurants, coffee shops and barbers occupy the lower floors. To sweeten the attraction, TulsaRemote.com is offering $10,000 to remote workers to move to the city of Tulsa with only a few restrictions. Applicants must:

·         be 18 or older

·         live outside the city

·         be authorized to work in the U.S.

·         have a full-time remote job

·         have lived outside of Oklahoma for at least a year

·         work remotely full-time

·         relocate to Tulsa within a year of approval

·         stay for one year or more

The $10,000 is paid in monthly installments or can be paid in a lump sum after the purchase of a Tulsa qualifying home. Who wouldn’t want to live in a gorgeous Art Deco studio apartment nearly rent-free for a year?

Other cities have also had success in adaptive reuse. After 9/11 and with public support, New York City converted 20 million square feet of office space into apartments, effectively doubling the residential population of Lower Manhattan. Between 2000 and 2020, a 10-year tax abatement in Philadelphia converted 8.2 million square feet from over 40 office buildings, increasing the residential population by 54%.

Overcoming regulatory and zoning limitations is key to adaptive reuse. Developers can’t afford to be embroiled in long battles with the city to get a conversion greenlighted. Traffic-choked Los Angeles made a difference by allowing downtown office converters to renovate with a variance in its parking regulations.  

Developers must also navigate the physical limitations of existing buildings, which can restrict how many residential units can be added. While renovation is often less expensive than demolition and new construction, it also offers the added benefit of preserving the building’s distinctive architectural features.

Sustainability is another key concern—green building practices are increasingly important to prospective residents. But equally important is convenience. Residents don’t want to pay a premium to live in a building or neighborhood that makes everyday tasks—like buying groceries, doing laundry, or dining out—more difficult.

A mixed-use development approach that integrates places to live, work, and play can help overcome this kind of market resistance. Business districts thrive on being dense centers of activities, and office jobs are very conducive to densification, states Brookings, but adaptive reuse is only part of the answer. Office-to-residential conversions have an impact on density, as office buildings can hold many more workers than residents, but once residents move in, cities can benefit from higher residential property taxes, which should encourage public support. The key is getting people to want to live in an adapted reuse environment. Basic needs such as groceries, childcare, transportation options, and personal safety have to be part of the infrastructure.

To make living downtown or in another industrial/commercial area attractive, developers should prioritize making the area a destination to attract visitors, residents and workers, with the likes of arts and entertainment facilities, parks, health care services, retailers, restaurants, and schools. Infrastructure should include public transportation and enhanced safety measures, including more streetlights, fire and police protection, walkability initiatives and Segway-equipped concierge ambassadors, the latter of which make cities like Atlanta more inviting and fun to visit.