Converting office space into living space is hard. Millions of square feet of office space are vacant in downtowns from San Francisco to New York City. The United States also has a tremendous shortage of housing, but only a fraction of this available office space is likely to be turned into apartments.
“It’s a much smaller universe than people think,” says Jay Lybik, national director of multifamily analytics for CoStar Group.
No more than 6.9% of office space in urban areas in the U.S. is likely to become apartments because of a range of factors, starting with the size and shape of the buildings. And if fewer office buildings suitable for conversion have extreme vacancy problems, that percentage could drop to 0.9%, according to research from CoStar.
Most office buildings have features that make them difficult to redevelop.
Some are located in places where renters don’t want to live. The windows of others may be giant sheets of single-pane glass that don’t open and lose too much heat to meet today’s tough standards for energy efficiency. Other problems range from ugly lobbies to asbestos.
Developers can solve many of these problems if they simply spend enough money. High rents can help … so can government subsidies for historic rehabilitation or environmental remediation.
Here are five examples of how apartment developers are—sometimes—finding solutions to these challenges and lessons drawn from their experiences.