In October 2022, there is an empty office in San Francisco. The city is one of many across the country offering incentives to convert unused office space into housing. (Justin Sullivan | Getty Images)
Nearly a fifth of office space nationwide is vacant, a record vacancy rate that is expected to continue to grow.
In an effort to both stimulate their economies and alleviate their housing shortages, cities are taking steps to encourage the conversion of unused office space into much-needed housing. They include reductions in approval times and exemptions from affordable housing rules. and changes in building regulations. Some cities and states also offer tax breaks or subsidies to developers.
“Cities should focus on making renovations feasible by removing unnecessary regulatory barriers,” said Alex Horowitz, project director of the Housing Policy Initiative at The Pew Charitable Trusts.
“The US has a shortage of millions of homes and office vacancy rates are at record highs. It makes perfect sense to convert underutilized commercial space into residential, but the cost per square meter is simply too high.”
Buying and converting an office building for residential use costs an average of $685 per square foot. Buying a completed multifamily home costs an average of $600 per square foot, while building a new multifamily home costs about $588 per square foot.
Regulatory hurdles – such as outdated building codes, minimum unit sizes and natural light requirements – drive up costs. Cities are trying different ways to overcome these obstacles.
From coast to coast
In September, Minneapolis eliminated several regulations in an effort to encourage conversions, including eliminating public hearing requirements, requiring less intensive traffic studies and exempting converted buildings from the typical requirement that 20 to 30 percent of units must be rented at rates below market prices. .
San Francisco has waived certain planning and building codes, as well as real estate transfer taxes, for downtown renovations approved before 2030.
Seattle in July approved exemptions for commercial-to-residential property conversions from certain design development standards and housing affordability requirements.
New York City’s Office Conversion Accelerator program provides office building owners with a single point of contact to streamline conversions, from zoning questions to permitting.
And Denver launched an adaptive reuse pilot program last year to make it easier and faster to get conversions approved by the city.
Jon Gambrill, managing director of global architecture firm Gensler’s Denver office, said converting the top 16 buildings identified by the firm and city leaders into housing could add more than 5,000 units to downtown.
Atlanta, Denver, Phoenix, the San Francisco Bay Area and Seattle will benefit the most from converting underutilized offices to residential, according to a June Urban Institute analysis.
Yet the renovations have so far had little effect on the housing crisis.
According to CBRE, a commercial real estate services and investment firm, office-to-multifamily conversion projects created more than 22,000 apartments between 2016 and April 2024. The 169 planned or ongoing projects are estimated to deliver an additional 31,000 apartments in the coming years. Despite the growth, that total amounts to less than half a percent of the total U.S. apartment stock.
During a June presentation by Seattle’s Office of Planning and Community Development, city leaders estimated that they expect fewer than a dozen remodeling projects to result in 1,000 to 2,000 new homes over seven years.
Money is important
Cities and states also try to promote conversions by offering incentives and financing.
New York City’s 2025 budget included a new incentive for the conversion of commercial real estate to rental housing, offering up to 90 percent tax exemptions for projects with at least 25 percent affordable units.
Chicago has pledged $151 million to developers to convert four office buildings into 1,000 apartments, about a third of which would have affordable rents.
Washington, DC, through its Housing in Downtown initiative, offers 20-year tax breaks for converting commercial buildings to residential properties.
The District of Columbia led the nation in adaptive reuse from 2021 to 2024, creating 5,820 new residential units from office buildings, followed by New York (5,215 units) and Dallas (3,163 units), according to RentCafe, a search website to apartments.
California approved $400 million for office-to-residential projects in 2022.
Commercial-to-residential legislation has hit some hurdles.
California’s Democratic Governor Gavin Newsom in October vetoed legislation that would have given financial incentives to developers, including the option for local governments to allocate up to 30 years of property tax revenue to support affordable housing conversions. It would also have accelerated the approval process for the conversion of office buildings into residential or mixed-use projects.
Newsom objected to changes in labor practices, including issuing work bans for violations and procedures for disputing violations.
And in Colorado, a bill that would have offered refundable tax credits of up to $3 million per commercial-to-housing project starting in 2026 failed in the Legislature earlier this year.
Still, experts expect home conversion efforts to increase across the country.
“All Americans, especially underserved communities, need homes they can afford,” said Pew’s Horowitz. “But outdated rules make it more difficult to create highly affordable housing.”
This story was originally published by Stateline, which, like the New Hampshire Bulletin, is part of States Newsroom, a nonprofit news network supported by grants and a coalition of donors as a 501c(3) public charity.
