Conversions from office buildings to apartments are at an all-time high, having made way for 11,000 apartments in just the last two years, according to a report from RentCafé.
The report also says there are 77,000 apartments under conversion, setting up the stage for a boom in adaptive reuse in the upcoming years.
“This increasingly popular real estate niche brought a total of 28,000 new rentals in 2020-2021, well above the pre-pandemic years of 2018-2019 when 22,300 apartments were brought to life through adaptive reuse. Amid an ever-growing need for housing, adaptive reuse picked up speed in America’s largest cities, according to the latest data from Yardi Matrix,” the report says.
“Existing building architecture is the critical starting point. Not all buildings are equally threatened by the work-from-home revolution. Larger office buildings in abandoned central business districts are better suited to conversion than the often-smaller office complexes distributed around the suburbs,” said Doug Ressler, manager of business intelligence at Yardi Matrix.
Here are the main findings:
- The 25 percent jump in converted apartments compared to pre-pandemic years roughly translates into 28,000 new rentals delivered nationwide in 2020 and 2021 combined. Washington, D.C., Philadelphia, and Chicago are the leaders when it comes to repurposed buildings during the pandemic, boasting a combined 15 percent of all apartment conversions in the United States.
- Adaptive-reuse apartments grew faster than new apartments — 25 percent versus 10 percent — during the same timeframe. After maintaining a steady pace of growth of around 35 percent each year between 2012 and 2017, adaptive reuse saw a dramatic decrease of 24 percent between 2018-2019. By the start of 2020, conversions picked up speed again.
- Conversions from office to apartment hit a record high, with 11,090 apartments delivered in 2020 and 2021 alone. That’s a 43 percent uptick compared to the previous two-year interval (2018-2019). Washington, D.C., Philadelphia and Chicago lead the way in this category as well.
- Office buildings are the most popular type post-pandemic, making up 40 percent of all adaptive-reuse apartments. However, smaller niches such as former healthcare buildings are growing at a staggering pace. The number of apartments converted from healthcare buildings more than tripled during the pandemic compared to the 2018-2019 period, increasing by 212 percent. Next up come the religious buildings, with a 73 percent increase, followed by hotel conversions, which grew by 65.6 percent. The next conversion niches are former factories, warehouses and school buildings.
- 77,000 converted apartments are expected to be opened over the next several years. As a matter of fact, nowhere is the future development of adaptive reuse more evident than in Los Angeles, where a total of 4,130 apartments resulting from conversions are expected. As many as 1,242 apartments came online between January and June in Los Angeles, making this year the best one in the last decade.
When it comes to future projects, office conversions are projected to represent 28% of total apartments under conversion — the largest share of all building types under conversion, according to Yardi Matrix. Hotels represent the second-largest share (22% of future projects), while factories (that make up 16% of the total) are in third place.
About Yardi Matrix
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.