In the UK the change in need has for years (ie even before COVID) driven planning changes so that it's easy to get an OK to convert say an office building into residential. The results definitely vary, between "This is legal but nobody should have to live like this" (e.g. far too much light from floor to ceiling windows in some rooms while others are dark, not enough bathrooms, poor heat and noise insulation) to actually rather nice places to live. Most tend to be rental units for young people, rather than family homes, but it all helps.
Where bureaucrats actually get to just make the decisions at a high level, rather than everything being second guessed by NIMBYs it's just really obvious what you have versus what you need. If you know your city has an inventory of empty mid-size office buildings sat on the market for months, yet apartments within walking distance of the city centre go for crazy money, it's a no brainer to authorise conversions. Whereas if the last office building was snapped up an hour after going on the market, while residential sales are crawling, a conversion from office to residential is nonsense, tell them to go away.
At least in the UK, they're more likely to get permission to convert to residential if it's long abandoned.
Housing demand in cities is much higher than the normal available space on the boundaries. Carving a big box into 300 apartments more than justifies a couple of years of doing nothing with the place.
There have been many articles in the last few months about conversions. The regulations make it extremely expensive to turn in office into a home. There was an article last fall where someone backed out of doing that for a tower in San Francisco because in addition to the standard regulations there was also requirement that some of the units be set aside for low rent and that made the conversion economically unfeasible even for the biggest optimist
And plumbing and wiring a building is vastly cheaper than building a new one from scratch.
Most modern office buildings are already designed so their tenants can orient the space however they like, Including adding/removing walls and plumbing/electric
If you can buy office buildings at half the valuation of a similar square footage residential building, converting it will obviously be profitable. It was already profitable in many cases pre Covid before office became severely depressed. The valuation gap between residential and office has probably never been wider
Converting office buildings to residential is something that already really happens, so there’s not actually a question about whether it is possible. My comment was just to summarize why.
There are a few conversions like this where I live (also in the UK) and I agree that the results definitely do vary. Where the conversion is in the heart of the city, it seems to work pretty well -- sometimes even better than knocking down and rebuilding, because the existing offices usually have stand-off space around the building that would be lost in a high density redevelopment. And from an environmental perspective, keeping all of that 1950s/1960s poured concrete in place has got to be a good thing.
What really doesn't work is the partial conversion of offices on industrial/commercial parks out of town. It seems to lead to completely incongruous buildings, dumped essentially in the middle of parking lots, without basic amenities such as verges and pavements. Those buildings tend to be flimsy, and it's hard to see the environmental argument for keeping them. I would rather see those sites razed and rebuilt as better quality housing.
There are any number of difficult ways to give people somewhere to live that we're not doing. I would assume the reason to mention converting commercial property into residential is because the person suggesting this (usually wrongly) thinks it is easy.
There was an Odd Lots pod on this (from Bloomberg). Quite interesting. I didn't realize how many issues there are in the potential conversion from office to residential. A very small percentage of office builds can actually be converted.
Yeah, but many offices are likely to be converted to other uses, rather than persist with partial occupation. Hotel, residential etc
People often say it’s cost prohibitive, but it’s been done many times before, and valuations of Offices will get so depressed that conversions begin to look very lucrative
If only it were that easy! If offices could be easily converted to residential, then the current market conditions would be incentivizing owners of all these vacant office spaces to be pressuring for re-zoning and conversion right now. Unfortunately, many office spaces are ill-suited for residential conversion.
There's often not enough plumbing. Often very literally, as in the main sewer, and municipal infrastructure, are undersized for residential use. Also, once you add adequate walls and dividers to separate the units, plus furniture, packed into typical apartment sizes, the weight is usually much more than for an office, often more than the structure is rated for.
Conversion of office property to residential also requires a lot of capital which seems forgotten by a lot of the folks championing this kind of conversion. It's not as simple as building some interior walls and calling it a day
Floor plans are awkward if you had to segment them in to apartments, having each apartment meet code for residential spaces turns in to a puzzle in ensuring things like light entry. Math that made sense for office buildings doesn't translate as easily to residential, so you're paying for more elevators (made for an office building) than you need, you have less floor space you can rent out because you need it for amenities, you have to do extensive renovations to make it suitable for living, and then have to hope the commercial real estate market doesn't surge in demand after you've done it.
It's apparently doable, but not easy, and has a significant downside if there isn't enough demand to meet your new luxury apartment building, and the risk that commercial real estate bounces back after you've done it.
The two biggest hurdles in doing office-to-residential conversions are:
1. The lease span (i.e., the distance from the core of the building to the windows) is typically much larger in an office building vs. a residential building (40ft vs 30ft).
2. The plumbing/mechanical services need to be increased/modified for a residential building.
Enforcing the first would essentially mean asking the developer to design a different building. It's possible that you could make an office building work without following conventional office layouts and leasing patterns (who knows, maybe there's more of an appetite for something different post-COVID), but it would involve a significant re-thinking on the part of the developer about how they will make money from a project.
The HVAC/plumbing issue could probably be something you could ask the builder to make accommodations for without needing to totally re-conceptualize the project.
My impression is that modern office buildings are basically stacks of exhibition halls. You can repurpose them easily and build the infrastructure you need. The biggest obstacle to converting them to residential is not plumbing or elevators but the lack of windows near the core.
Of course, it's not the modern centrally located office buildings that are vacant but the older ones at more remote locations. Converting those is going to be more expensive, and it may be more cost-effective to simply demolish them and build new residential.
Most office buildings are not architecturally feasible to convert to residential. In fact, because of zoning laws, many/most can't even be converted.
Would you live in an apartment 15 feet wide and 50 feet deep? No. That's why most office buildings dont work
You have to redo all the mechanical, plumbing, electric, and then entirely refinish the building. Its literally cheaper to build new than deal with the nightmare that is to convert an office.
I work in CRE - every single office to multi deal i have seen the developer has war stories. And the units are 40-100% more expensive in cost than other apartments.
Office buildings are like an infectious disease. You could let them die. But if you have an urban infill city environment and more and more office properties become ghost buildings, then that disease will spread. All of the restaurants and other businesses nearby that rely on the foot traffic from office folk, they will die. You will see more riff raff. More homeless. More crime.
Many office assets need to go to 0 in asset value before the private market is willing to take the risk of those conversions.
Remember, loans are close to 10% for construction. And equity returns are higher.
Where I live in the UK, they've converted multiple office blocks to student accommodation. They are also tearing down block of flats due to other structure issues. Generally it's easier to build housing on green field rather than brown sites due to contamination etc. Once you convert the office to housing, when you need office space you'll have to build it somewhere
Where bureaucrats actually get to just make the decisions at a high level, rather than everything being second guessed by NIMBYs it's just really obvious what you have versus what you need. If you know your city has an inventory of empty mid-size office buildings sat on the market for months, yet apartments within walking distance of the city centre go for crazy money, it's a no brainer to authorise conversions. Whereas if the last office building was snapped up an hour after going on the market, while residential sales are crawling, a conversion from office to residential is nonsense, tell them to go away.
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