With a lack of inventory fueling the current housing crisis, U.S. cities are converting commercial spaces into residential spaces. In 2023, the number of apartments created in buildings that were originally designed for other purposes ticked up to about 12,700 completed units — nearly 18 percent higher than in 2022, when roughly 10,800 were created, according to a report by RentCafe.
About a third of those conversions, known as “adaptive reuse apartments,” were in hotels, while 28 percent were in former office buildings — the first time since 2012 that more were created from hotels than from offices. Of the remaining new units, 15 percent were in former factories, 9 percent were in former warehouses and 12 percent were in a mix of other types of buildings.
Last year’s increase was a return to a longer-term upward trajectory. The RentCafe report reached back to 2010, when 6,091 total adaptive reuse units were created. The number peaked at 16,533 in 2017, and an average of about 12,300 apartments were created each year from 2018 through 2021.
In many cities, all it takes is one big project to make a difference. Manhattan unveiled the most units in former hotels last year, 733 — most of them in 525 Lexington Avenue, the former New York Marriott East Side, which is now student housing. A suburb of Atlanta, Peachtree Corners, Ga., converted the most offices to apartments, 295, thanks to a single repurposed office building.
Hotels are generally easier to adapt to residential use because individual rooms are already in place. In recent years, decreased tourism and the rising cost of debt have spurred some hotel owners to offload struggling properties for conversion.
Office buildings typically require more complicated renovations. According to RentCafe analysts, office conversions rose in the aftermath of the Great Recession, when older office buildings with layouts more conducive to conversion became available. Now, based on units already planned or in the works, they will again surpass hotels and dominate the adaptive reuse market. Why? More remote work has reduced leasing demand, so there’s a lot more office space available.
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