As 2024 winds to a close, it is decidedly a time of changes, choices, and consideration in the real estate sector as much as it is in every other industry. Granted, some changes to our built environment are undeniably necessary. Namely, current challenges include: aging and obsolete office buildings left vacant by the flight-to-quality movement; a commercial real estate sector in dire need of decarbonization; an increasingly tight housing sector; and big-city downtown economies that struggle in the dwindling foot traffic of recent years.
Of course, changes require choices and wherever there is choice, there is opportunity. So, with consideration to the importance of all of the above, we turned to CommercialEdge research on the feasibility of office-to-multifamily conversions. Specifically, we looked at how much urban core office space is a quality or top-tier candidate for such neighborhood revitalizing transformation. See our methodology section for details and read on for our list of the top 30 U.S. cities for office conversion.
The conversion feasibility index (CFI) is a new market intelligence tool developed by CommercialEdge. The index evaluates office properties based on building characteristics; location and placement; architectural considerations; and environmental factors. The resulting score places the property in one of three categories:
- Tier I is 90 to 100 points and marks top conversion candidates (easily adaptable to multifamily property use)
- Tier II is 75 to 89 points and identifies quality conversion candidates (conversion may require some special effort, but is still largely viable)
- Tier III is 74 points or less and includes properties that are more difficult candidates for conversion (conversion is possible, but comes with considerable challenges)
How Much Could Transforming Aged Office Space Revitalize America’s Premier Downtowns?
As more and more residents were priced out of city core housing markets in recent years, commuting into work became the main driver of foot traffic downtown. This also made retail and other service sectors in the downtowns of the country’s most prominent urban hubs dependent on the increasingly tense pre-pandemic workplace paradigm.
As we prepare to enter 2025, a multitude of cities in the U.S. are faced with a dual challenge — a glut of underutilized office space alongside a scarcity of affordable housing. However, within these complex challenges lies opportunity: Across the top 30 U.S. cities we analyzed, the great majority of Tier I and Tier II conversion-feasible office spaces are concentrated in the central business districts and surrounding urban submarkets — the same areas that have been most affected by office vacancy rates since 2020 and the flight-to-quality office leasing trend that took off before that. While some cities — particularly those that had room to sprawl — also have some conversion-feasible office space in their suburban segments, the majority of office space has historically been concentrated in the urban core, where data also showed the largest potential for redevelopment.
A focus on Tier I conversion-feasible stock in these 30 central business districts and surrounding urban segments alone could mean turning roughly 167 million square feet of aging office space into modern residential and mixed-use properties. That would bring more residents back into the urban core and make for more inclusive live/work/play downtown communities, as well as better building practices in terms of urban planning and environmentally conscious construction.
New York City, Chicago Top List of Most Promising Office Space for Conversion
New York (#1) and Chicago (#2) — the epicenters of high-rise commercial construction — topped the list in terms of office square footage that’s best-rated for adaptive reuse. Notably, these same cities also recently launched some of the largest programs to support office-to-residential conversion projects.
For instance, the Office Conversion Accelerator program launched in NYC in 2023 and aims to contribute to the resolution of two crises affecting the city — scarce housing and aging, vacant office stock. Spearheaded by the Office Adaptive Reuse Task Force, program recommendations include facilitating the conversion of most office buildings constructed in or before 1990; tax incentives for conversions that create affordable housing; and retrofitting space to accommodate childcare facilities.
This is a welcome administrative initiative, considering how much space could be redeveloped: According to CommercialEdge CFI data, nearly 276 million square feet of office space in New York City is in good condition for conversion. In fact, nearly half of office space across the five boroughs is either Tier 1 (15% of total rentable office space) or Tier II (34%).
Likewise, the office-to-residential conversion movement has also picked up steam in Chicago with a particular focus on LaSalle Street Reimagined — a program that aims to revitalize the city’s traditional Loop business district. With many companies now preferring to rent modern offices in the more easily commuter-train-accessible West Loop or Fulton Market, older, less-updated office properties remain largely vacant.
As reported by The Wall Street Journal earlier this year, Chicago seems to have gone above and beyond most other cities’ efforts to support projects converting obsolete office space to other potential uses, primarily to boost the dwindling stock of affordable housing. Here, efforts to revitalize the LaSalle Street corridor include a bold plan set forth by former Mayor Lori Lightfoot and carried on by current Mayor Brandon Johnson. The plan would provide developers with $150 million to convert four central business district office buildings into more than 1,000 apartments, one-third of which should be set aside as affordable.
Furthermore, the current administration is reportedly in talks with other landlords to add their properties to the program and expand the city’s housing and hotel stock through additional office conversions. Roughly 80% of rentable office space in Chicago that is Tier I conversion-feasible is concentrated in the city’s central business district (nearly 11 million square feet). This is also the case for Tier II conversion-feasible office space, 79% of which (roughly 29 million square feet) is located downtown.
90+ Million Square Feet of Office Conversion Opportunity Concentrated in California’s 2 Largest Cities
In California, San Francisco (#3) and Los Angeles (#4) combined for a total of nearly 94 million square feet of Tier I and Tier II conversion-feasible office space. The City by the Bay stood out among cities on the West Coast for its top-tier stock of conversion-feasible office space. More precisely, Tier I properties here added up to 11.4 million square feet and represented nearly 11% of rentable office space in San Francisco — a share of stock that’s second only to NYC’s 15%.
Despite local administration efforts to incentivize projects converting underutilized space to housing and other uses, uptake in Fog City has reportedly been scant. Namely, reducing red tape, increasing zoning flexibility and a ballot measure to scrub transfer taxes drew less interest than expected. Accordingly, Mayor London Breed and Supervisor Matt Dorsey recently upped concessions and proposed the elimination of impact fees and affordable housing requirements, specifically for office conversion projects in downtown San Francisco.
At the same time, data showed closely similar values further south down the California coast: A little more than 11 million square feet of office space in Los Angeles is top-tier conversion-feasible and represents roughly 9% of total rentable stock in the city. L.A. also came out ahead of San Francisco in terms of Tier II stock: The nearly 38 million square feet of office space in this category was the second-largest such stock total behind NYC’s 192 million.
In 2022, Los Angeles boasted the largest number of residential units converted from office space. The following year, Mayor Karen Bass announced the city’s plans to expand the 1999 adaptive reuse ordinance as part of a strategy that would enable the city to meet its housing obligations in the coming years. Referring to properties completed before July 1974 in a handful of neighborhoods, the original ordinance resulted in the creation of 12,000 residential units in downtown LA. Fast forward to 2024 and recently proposed changes would expand eligibility to include all buildings citywide that are at least 15 years old, properties aged five to 15 years that have approval of a conditional use permit, as well as any parking garage that’s at least five years old.
There were also two other West Coast cities among the top 10 U.S. locations for office conversion: Seattle (#9) is home to roughly 4 million square feet of Tier I stock (closely behind Boston) and about 18 million square feet of Tier II conversion-feasible office space. Combined, this accounts for roughly one-quarter (26%) of rentable office space in Seattle.
Not to be outdone, Portland, Ore., rounded out the top 10 for Tier I office stock candidates with a comparatively modest 2.8 million square feet of office space in this category. Together with the nearly 11 million square feet in Tier II, more than 30% of rentable office space here is a considerable candidate for residential conversion.
Philly & Pittsburgh Claim Combined 40+ Million Square Feet of Office Redevelopment Potential
The two largest cities in Pennsylvania offer similar potential in terms of office-to-residential conversion and ranked close together among the top 10 candidates for office redevelopment. Tier I conversion-feasible office space in Philadelphia amounts to nearly 6 million square feet — which placed Philly at #5 on the list — and represents about 8% of total rentable stock in the city. Meanwhile, a little more than 5 million square feet of Pittsburgh office space is rated Tier I on the conversion-feasibility index, placing Steel City #6 in this ranking. This represents about 9% of total rentable local office space here, which is slightly more than in Philly.
When adding Tier II conversion-feasible office space to these numbers, Philadelphia offers a total of 24.5 million square feet of office conversion potential. Similarly, developers could be looking at a total of nearly 17 million square feet of possible adaptive reuse projects in Pittsburgh. Together, these Pennsylvania cities bring roughly 41.4 million square feet of considerable conversion-feasible office space to the table.
Notable projects already in the works include the 18-story Center City Philadelphia office tower at 1701 Market St., which is being redeveloped to accommodate nearly 300 luxury apartments, along with the city funds-approved conversions of downtown Pittsburgh’s Triangle Building and the historic First & Market building.
25%+ of Rentable Office Space in Boston is a Good Candidate for Conversion
The New England powerhouse placed #8 among the best cities for Tier I consideration with roughly 4.6 million square feet of office space rated highest for multifamily conversion potential. With an additional 17.2 million square feet falling in Tier II, nearly 26% of rentable office space in Boston makes for a considerable candidate for adaptive reuse.
Here, developers choosing to embark on such transformative projects will find a welcoming environment. That’s because a city-state partnership that was announced earlier this year has extended the Downtown Residential Conversion Incentive Program launched by Mayor Wu in 2023. The goal is to facilitate the transformation of older commercial office space to much-needed residential units. With additional funding from the state, Boston boasts a strong commitment to making office-to-residential conversions more feasible. Yet, despite the notable potential, development activity in this respect has reportedly been as slow as in San Francisco.
D.C., Houston, Denver Among 10 Best Tier II Candidates
While Washington, D.C. ranked #7 among the best Tier I cities for its 4.7 million square feet of office space in this category, the capital placed #4 in the Tier II ranking. The city has nearly 34 million square feet in office buildings that are rated quality conversion candidates, representing more than 25% of the total rentable office space in Washington, D.C.
With a central business district that’s roughly 90% commercial buildings and only about 10% residential, Washington, D.C. has been weathering some of the highest vacancy rates in its history. As such, Mayor Muriel E. Bowser’s administration has put considerable weight behind evening out that mix. Key incentive strategies include the Housing in Downtown Program — a competitive $42 million initiative that’s largely a 20-year property tax abatement for downtown D.C. conversion projects in which at least 10% of units are affordable for families making less than 60% of the area’s median income.
Another Southern U.S. candidate ranking among the best cities for Tier II conversion potential is Houston. The sprawling Texas destination is home to more than 22 million square feet of office space in quality conversion-feasible buildings, which accounts for 10% of Houston office space (rentable) and placed the city #6 in this category. By comparison, the local Tier I stock includes a little more than 1.5 million square feet (less than 1% of the total rentable office space in the city).
Further northwest, the nearly 18 million square feet of office space in Denver that’s rated Tier II conversion-feasible represents nearly 27% of all rentable stock and placed the Mile High City #9 in this category. Conversely, Tier I stock here included roughly 1.3 million square feet (2% of total rentable stock), which placed Denver at #16 in the top-tier conversion-feasibility ranking.
How the Conversion Feasibility Index Can Add Value for Developers & Communities
For a better understanding of why looking at office space through this lens is important at this time, as well as how this new CommercialEdge research tool can help revitalize cities across the U.S., we sat down for an interview with Peter Kolaczynski, director at CommercialEdge.
This market intelligence tool feels well-researched. How long was it in development by the CommercialEdge team?
Kolaczynski: “Indeed, a significant amount of time and effort went into this research. It took us around eight months to thoroughly analyze what is currently more than 81,000 buildings in the CFI data.”
The index weighs a variety of aspects when scoring the conversion feasibility of a property. Which of these aspects do you find holds the most weight, regardless of which market the property is in?
Kolaczynski: “It is challenging to not overanalyze and end up with a set of factors that may not easily apply to properties in all locations, but it is a challenge worth tackling. Among the aspects currently weighed toward the final score, I’d say that the year built, the building dimensions and the shape of the floor plate are probably the most important characteristics. The more functionally obsolete an office property becomes, it should be looked at as a conversion opportunity worth exploring. When weighing characteristics suitable for a conversion to residential use, the dimensions, shape and whether the property is mid-block can give you a good picture of potential access to natural light, which is one of the most important features of a home.”
What would you say is the most immediate value that this market intelligence tool offers developers?
Kolaczynski: “While a conversion from office use to multifamily can’t ever be considered easy in the strictest sense, there is a higher number of buildings with potential worth than one would think. Given the continued destruction value in the office segment — along with what we expect is an increase in incentives and subsidies — the aim of our work on this, as a whole, is to demonstrate the extent of that possibility.”
Similarly, how would you say that this kind of research can bring value to neighborhoods and communities?
Kolaczynski: “Hopefully, it demonstrates valuable opportunity and gets more people talking about the potential it can unlock for communities to thrive and grow. Cities, states, and the federal government could look at programs to initiate or support development in this sense.”
Is there something more to it in development that we can look forward to in the near future?
Kolaczynski: “We are always tinkering on our products and are keen to respond to what the market is looking for. We strive to be a thought leader in this sector, and I would expect we will continue to work on similar projects when it comes to office usage.”
Methodology
For this analysis, we turned to CommercialEdge conversion feasibility index (CFI) data for the 30 largest cities by total urban core rentable office stock in properties sized 25,000 square feet or larger. We looked at how much office space is potentially convertible according to the CFI methodology and tier structure:
The CommercialEdge CFI scores office buildings based on several factors, including building characteristics; location and placement advantages (or disadvantages); as well as architectural and environmental considerations (visit the expanded CFI methodology for more details). The resulting scores are classified into three tiers:
- Tier I – Top Conversion Candidates (90-100 points), referring to properties that present characteristics most favorable for conversion.
- Tier II – Quality Conversion Candidates (75-89 points), which are a step below Tier I candidates, but still possess considerable potential for conversion to residential use, albeit with some challenges.
- Tier III – More Difficult Conversion Candidates (0-74 points), which incorporates properties that present significant challenges or limitations to the conversion process.
Considering Tier I properties to be the best candidates for adaptive reuse, we ranked the U.S. cities with the most office conversion potential according to how much office space was rated Tier I in each location.
The percentage expressed for each tier represents the share of conversion-feasible office space out of total rentable office in each city. The distribution of Tier I, II, and III office space by where it is located within each city is estimated according to the central business district, urban, and suburban breakdown, as defined by CommercialEdge.
Data presented herein is as of October 10, 2024.
