Transforming Urban Centers
U.S. cities are experiencing a surge in office-conversion projects, signaling a shift in how urban districts are revitalized. As of Q1 2024, nearly 70 million square feet—or 1.7% of the total U.S. office supply—was in the process of being converted to alternative uses, marking a rise from 60 million square feet (1.4% of supply) in Q3 2023.
Office-conversion completions are expected to more than double this year compared to 2023. With hundreds of projects in development, urban office centers are steadily evolving into more dynamic, mixed-use hubs.
Approximately 120 office-conversion projects are set for completion this year—three times the annual average from 2016 to 2023. This pipeline suggests elevated levels of conversions for years to come.
The Rise of Office-to-Residential Projects
Residential-focused projects dominate the conversion landscape, with 63% of current and planned conversions dedicated to multifamily or mixed-use residential properties. Since 2016, 133 office-to-multifamily conversions have added over 22,000 apartments nationwide, with an additional 169 projects in progress or planned, poised to deliver another 31,000 units. While impactful for local markets, these numbers contribute minimally to the broader U.S. housing inventory, addressing less than 0.5% of the national housing shortage.
Key Conversion Markets
Markets with a high concentration of older office buildings lead the nation in planned and ongoing conversions. Cleveland stands out, with 11% of its office inventory undergoing or planned for conversion—the highest percentage in the U.S. Meanwhile, Houston leads in sheer volume, with 6.2 million square feet in transition. Notably, eight of the top 10 markets for conversion activity reported office vacancy rates above the national average of 18.6% in Q4 2023.
Downtown Cleveland showcases the potential of office conversions. Since 2016, over 3.5 million square feet of outdated office space in Cleveland has been repurposed, reducing total office inventory by 18% and decreasing vacancy rates from 19.7% to 17.3%.
Challenges and Opportunities
While converting underutilized office buildings into residential or mixed-use properties offers a path forward, the high costs—ranging from $250 to $650 per square foot—often present a barrier. High interest rates add another layer of complexity, though forecasts suggest rates may decline later this year.
State and local governments are stepping in to support these projects. Subsidies, zoning flexibility, and expedited approval processes are among the measures being explored to encourage developers to reimagine America’s downtowns as vibrant, multi-functional districts.
