While 2019 and 2020 were peak years for adaptive reuse, 2021 and 2022 saw a slowdown in the number of projects converted to apartments, according to a new report from RentCafe.
However, that pullback isn’t expected to last, with a projected 63% increase in upcoming projects. After analyzing Yardi Matrix data, RentCafe finds that 122,000 rental apartments are expected to be developed as part of adaptive-reuse conversions in the next several years. Office conversions will lead the way with 45,000 apartments anticipated.
"Creative approaches are increasingly being sought to deliver net new affordable homes—leveraging of public assets, public financing tools, new legislative authorities, funding, and, importantly, more solutions with the private sector. These solutions include corporate funding and deeper alignment with traditional multifamily housing developers and investors," said Doug Ressler, senior analyst and manager of business intelligence at Yardi Matrix.
In 2022, the report finds that only 10,090 apartments were retrofitted, decreasing 12% from 2021 and 25% from 2020. Los Angeles; Kissimmee, Florida; and Alexandria, Virginia, led the way for conversions, making up 20% of the nation’s total. Other hot spots for conversions last year include Baltimore and Midwest cities, such as St. Louis, Cleveland, Kansas City, and Minneapolis.
While the number of office conversions slowed 15% last year, they still resulted in the addition of 3,390 apartments to the nation’s housing stock. Los Angeles converted the most offices into residential in its efforts to revitalize its downtown area, resulting in 692 apartments. In addition, office-to-residential conversions made up 100% of the adaptive-reuse projects in Alexandria and Baltimore, yielding 435 and 395 apartments, respectively.
Conversions of former hotels saw a significant surge, with a record-breaking 43% increase. This resulted in 2,954 apartments. According to the report, the decline of previous hotel markets has emerged as a catalyst behind these conversions.
“In 2022, we’re seeing the result of the drop in travel demand at the beginning of the pandemic,” stated the report. “Specifically, hotel owners are dismissing cities like San Francisco and New York—once known for their bustling tourist activity, where occupancy declined considerably, thereby leaving room for redevelopers to take over.”
RentCafe’s findings also showed that the repurposing of former factories pulled back in 2022. Only 1,241 units resulted from this type of conversion, which is a 49% drop from 2021.
Looking ahead, while office conversions are anticipated to account for the largest share of apartments under conversion, with 37% of the total, hotels are expected to have the second-largest share with 23%, followed by factories with 14% of the share.
Los Angeles is predicted to continue leading the way for adaptive-reuse projects, with 4,566 apartments expected to be created. New York City and Chicago follow with 3,987 and 3,519 apartments, respectively.