Nearly 45,000 future apartments are coming onto the market as a result of office conversions, according to the annual Adaptive Reuse Report. The report showed a slump in 2022 that was caused by the office market uncertainty.
And office conversions aren’t the only area affected. The entire adaptive reuse sector is caught in a dynamic twist between expectations and projections, according to RentCafe. Last year was the second consecutive year recording a decrease in overall completed projects, while the number of future adaptive reuse projects keeps growing to a record 122,000 units.
Last month, the U.S. Department of Housing and Urban Development (HUD) and the Biden-Harris Administration announced important help for communities and housing providers to identify federal resources to finance the conversion of commercial properties to residential uses and mixed-use development. The White House released a guidebook, developed in partnership with HUD and other federal agencies, to identify federal resources to finance the conversion of commercial properties to residential uses and mixed-use development.
Interest in converting older buildings into residences remains high, according to RentCafe’s analysis of Yardi Matrix data. Adaptive reuse apartments are expected to have a 63% increase in growth in the upcoming years.
“I believe there will be a huge boom in the next year and the year after, in terms of project starts and 2024-2027 in terms of project completions. A conversion project will probably take nine months to a year to design, in most cities, about a year to approve, and then at least two years of construction,” said Steven Paynter, principal at Gensler, one of the world’s largest design and architecture firms.
Pittsburgh was one of the top 10 cities with the most converted apartments from offices in 2022, with 174 apartments. Los Angeles ranked No. 1 with 692 apartments.
Last year, Pittsburgh converted one unused building, the historic Allegheny office building, which propelled the city to ninth place nationwide for the highest number of converted rentals from office space.
Pittsburgh is projected to retrofit about 870 units, of which about 520 new units will come from the transformation of two office properties. In addition, there are plans to convert a factory, two schools and a warehouse.
“The office market has taken a bit of a dip since the COVID-19 pandemic, but as many facets of the industry have faced, owners and brokers alike have had to pivot their practices and strategies to stay successful. In Pittsburgh, like many other cities in the country, we have seen many conversions of properties from one use to another. Most notably, with the increase in demand for rentals, office buildings have started the process of converting their properties into multifamily use,” said Dominic Janidas, president of the Realtors® Association of Metropolitan Pittsburgh and 2022 president of the PA/NJ/DE Certified Commercial Investment Member chapter.
“Looking at statewide stats, Pittsburgh is ranking among the top 20 markets for such conversions, including the historic Allegheny office building,” he added. “As the office landscape changes, we anticipate more of these similar types of projects going the way of multifamily use, which is providing some potential relief to the single-family housing market challenges markets are currently facing.”
In Philadelphia, there were significantly fewer apartments converted in 2022, compared to 2019 or 2020, with just 187 units. Out of these, 55 units came from a historic school conversion, while the remaining 132 resulted in the transformation of the former F.A. Poth brewery.
Despite this slowdown in apartment conversions, Philadelphia ranked No. 4 in cities for future apartment conversions. The city is projected to convert about 3,400 units; among these, office buildings account for more than 300 units. Besides that, two hotel transformations will add about 450 new apartments to the rental market. The rest of the conversions will involve retrofitting factories, schools, warehouses, healthcare buildings and buildings used for entertainment and transportation facilities. Currently, almost 1,400 uniters are under construction.