Office conversions are booming in 2024, with 73 projects already completed and another 30 expected to finish by year’s end—marking a peak since CBRE began tracking these conversions in 2016. Sky-high vacancy rates and declining office asset values have created ripe conditions for office-to-residential transformations, and public-private partnerships are incentivizing these shifts with financial backing. As cities ramp up incentives, sellers of distressed assets are increasingly willing to discount properties, especially older office buildings, creating a powerful pipeline of conversion opportunities across urban America.
Conversions Drive Urban Housing Solutions
The growing demand for downtown housing has made office-to-multifamily conversions a critical solution, especially in markets with tight housing availability. With the average multifamily vacancy rate at just 5.3% in Q3 2024, developers are drawn to the prospect of repurposing vacant office spaces. Since 2020, average multifamily rents have increased by 22%, while office rents have stagnated at a 1% rise. As of Q3, nearly three-quarters of planned conversions are shifting from office to multifamily, compared to 63% at the beginning of the year. This trend is reshaping downtowns nationwide by providing 28,000 multifamily units since 2016, with another 38,000 expected upon completion of ongoing projects.
While office-to-multifamily conversions dominate, office spaces are also being repurposed for other uses, such as hotels, senior housing, and data centers. These alternative property types, however, represent a smaller share of conversions due to a declining post-pandemic demand for life sciences facilities.
Revitalizing Business-Centric Districts
In its Shaping Tomorrow’s Cities report, CBRE classifies U.S. districts into five types, with “vibrant mixed-use districts” leading in economic performance. These areas blend prime office buildings, plentiful multifamily options, and accessible retail, dining, and entertainment, achieving lower vacancy rates and higher rent values than traditional business districts. Since 2020, 42% of completed office conversions have taken place in business-centric areas, and over half of planned projects are set to follow suit, with hopes of eventually transforming these locations into bustling, economically resilient mixed-use districts.
Chicago exemplifies the power of municipal support for these conversions. The city’s LaSalle Street Reimagined initiative has funneled financial incentives to projects in formerly business-centric areas, helping transform underused office spaces into the city’s densest cluster of mixed-use developments. Similarly, Cleveland stands out as the U.S. leader in office conversions, with 12% of its office inventory undergoing or planned for conversion. High construction costs and limited land availability have led Cleveland developers to innovate, pioneering conversion solutions well ahead of other cities.
The Road Ahead for U.S. Downtowns
As cities look to modernize their urban cores, easing zoning restrictions, offering financial incentives, and streamlining project approvals are becoming essential. Such measures position cities to efficiently adapt unused office space, paving the way for resilient, mixed-use hubs that can attract residents, workers, and visitors alike.
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