Office conversions are on track to more than double their recent annual average in 2023, according to a new analysis from CBRE.
Nearly 100 projects are expected to be completed this year in major U.S. cities, a substantial increase from the annual average of 41 completed from 2016 to 2022. Across 40 CBRE-tracked markets, 60 million square feet of office conversions are planned or in progress, which comprises 1.4% of the nation’s total office inventory, up from 1.2% in the fourth quarter of 2022.
Almost half of the office conversions this year, 48%, are for multifamily housing. However, office-to-mixed-use conversions are gaining in popularity, with 18% of the pipeline, up from 7% in the fourth quarter of 2022. Conversions to life sciences labs comprises 19% of activity, down from 28% in last year’s fourth quarter.
According to CBRE, the office building momentum can be attributed to increased incentives and other support from local and state governments. Major cities like New York and Chicago have passed zoning code changes and established partnerships to make these conversions more financially feasible.
“Converting offices to other use types is a complex process with many different moving parts,” said Mike Watts, CBRE president of investor leasing. “When state and local governments are supportive of the projects, it signals to developers that efforts are underway to make the process more financially feasible and predictable. The growing trend around conversions may help to revitalize downtown areas that have been affected by changing work styles that result in less need for office space.”
CBRE also noted that markets experiencing higher-than-average conversion percentages typically have more older office buildings with higher vacancy rates. Cleveland has the highest percentage of its office stock—11% of total inventory—planned or underway for a conversion. Boston has the largest footprint of conversions planned or underway at 6.1 million square feet, or 3% of the city’s office inventory.
For 2024, CBRE is tracking 60 conversion projects scheduled to be completed, including 42 underway and another 18 in planning stages.
“Conversions offer one solution, but they will not resolve the challenges facing the office market on their own,” added Julie Whelan, CBRE global head of occupier research. “Cities will need to be strategic in their approach to transform former office districts into mixed-use areas that are highly desirable to people and businesses.”
