As office vacancies hit historic highs and property values continue to decline, developers are increasingly transforming underutilized office buildings into much-needed residential spaces.

The big picture

This trend addresses two pressing issues simultaneously: the record-high national office vacancy rate, which reached 19.2% in Q3 2024, and the housing shortage, which demands an additional 3.8 million units nationwide. According to CBRE, the number of completed office-to-residential projects rose from 63 in 2023 to 73 in 2024, with 309 more projects underway, expected to deliver 38,000 housing units.

Zooming in

Distressed assets, such as Washington, D.C.’s 2100 M Street—which sold for $66 million after peaking at $150 million in 2007—are being redeveloped into residential properties. Notable conversions include New York’s Flatiron Building and Detroit’s Renaissance Center. Cities like Cleveland, where 12% of office space is being repurposed, showcase innovative design solutions such as atriums and light wells to breathe new life into outdated office buildings.

Challenges ahead

Office-to-residential conversions come with hurdles. Relocating existing tenants can increase costs, and extensive structural changes, like adding light-enhancing features, can make these projects as expensive as new construction. To mitigate these issues, landlords are adopting strategies such as incorporating lease eviction clauses or retaining minority stakes in converted properties to gain firsthand experience with the process.

The takeaway

While still a niche market, office-to-residential conversions are emerging as a practical solution to address high vacancy rates and the housing crisis. With over 71 million square feet of planned projects and growing support from municipal incentives, this trend is poised to redefine urban landscapes and revitalize struggling downtown areas.