Investment Horizons· Guide
The pandemic-induced work-from-home and the ongoing economic downturn have led to high vacancy rates in many core cities around the world, and the idea of converting office buildings into long-term rental apartments has emerged in many countries. Not only can it solve the problem of housing shortage, but also become a way to restore the economic vitality of business districts.
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The White House publishes policy
Support the conversion of office buildings into long-term rental apartments
According to RentCafe's latest inventory revitalization report, the number of projects in the U.S. long-term rental apartment supply that has been revitalized through stock housing has increased significantly in the past year, from 77,000 units in 2022 to a record 122,000 units in 2023. About 37% (45,000 units) of potential future supply will be converted from office buildings, and the supply of office-to-long-term rental apartments has quadrupled between 2021 and 2024, with the trend most pronounced in Washington, D.C., New York City, and Dallas. These cities encourage the conversion of office buildings into long-term rental apartments by allowing for more flexible land use, updating building codes, streamlining the approval process, and offering tax credits or property tax deductions.
Source: Internet
In 2023, the White House issued a policy to support this initiative and provided related funding and technical assistance. A range of policies and resources include new financing, technical assistance, and guidance for state and local governments, transportation agencies, and developers. In terms of financing, it involved $350 million in low-interest loans, loan guarantees, grants and tax incentives.
The U.S. office vacancy rate reached a 30-year high of 18.2% in the second quarter of 2023, negatively impacting the local economy, the White House said. Converting these office buildings into long-term rental apartments will not only alleviate the housing shortage crisis, but also reduce greenhouse gas emissions.
At the same time, the American Planning Association is also actively expanding its cooperation with the country's 30 largest urban planning directors to accelerate the promotion of new projects to convert office buildings into long-term rental apartments.
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The office building was converted into a long-term rental apartment
30% lower cost than new-build long-term rental apartments
According to the latest data from Gensler, an internationally renowned architectural design firm, about 25% of office buildings meet the criteria for conversion into long-term rental apartments. The study, which initially looked at 300 office buildings in 25 cities across North America, has since expanded to more than 1,000 buildings, providing owners with a series of preliminary indicators to quickly assess the conversion of older office buildings into long-term rental apartments.
Gensler points out that there are three major challenges in converting an office building into a long-term rental apartment: First, how to ensure adequate natural light. Because office buildings are often designed to lend themselves to a reasonable apartment layout, many interior rooms may lack natural light. Second, plumbing, lighting, and HVAC systems in office buildings are often not suitable for long-term rental apartments. Solving these problems requires increasing the number of windows, using transparent or translucent interior partition walls, installing skylights, decorating walls with reflective materials and light tones, and designing atriums or light wells. These measures can help to provide more natural light and improve the comfort of the living environment in the renovated long-term rental apartment. Third, office buildings are usually too high to be inhabitable. By removing the plumbing, lighting and ceilings of the office building, the "unpleasant" office floor height can be transformed into an ideal 3.2-meter ceiling height for a long-term rental apartment.
With these challenges overcome, the conversion of office buildings into long-term rental apartments will present an "unprecedented opportunity" and achieve a 30% lower cost of retrofitting than new builds.
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The office building was converted into a long-term rental apartment
Possible "roadside problems"
As more and more vacant office and commercial properties across the U.S. are being converted into long-term rental apartments, experts recommend that parking and the "roadside issues" that can arise arise should be taken into account when approving such projects.
Toccarra Nicole Thomas, director of land use and development at Smart Growth America, said it makes sense to convert vacant office and commercial space into long-rental apartments in the context of the national housing crisis, but the transformation is not straightforward. Thomas mentions that there are many challenges during the retrofit, among which roadside management and parking issues are often overlooked. Benito O. Pérez, director of policy for Transportation for America, noted that cities need to consider changes to vehicle parking, bicycle and bus lanes, and drop-off areas in front of buildings after building renovations.
Tenants want drop-off areas or short-term parking spaces near the entrance of long-term rental apartments, and supporting commercial and restaurant spaces for delivery and customer parking. Public transport stops and parking spaces, street restaurants, and more are also competing for curbside space.
Chicago has made progress on office building to long-term rental apartment projects and has provided six grants to incentivize such projects. Peter Lemmon, senior traffic engineer at planning and design consultancy Kimley-Horn, said roadside management and parking solutions for each project needed to be tailor-made, and adding parking meters or activating parking spaces on surrounding streets could meet changing needs. He recommends using technology to collect data to help develop more effective roadside management options.
Source: Internet
The International Institute for Parking and Mobility (IPMI) provides technical support for adaptive reuse projects by collecting data. Rachel Yoka, IPMI's chief strategy officer, said that the post-pandemic market is uncertain and the traditional urban parking model is disintegrating. Pérez reminds city managers not to rely too heavily on new technologies, but to first understand roadside assets and how they are used, and then explore innovation and technology to respond to changing needs.
Note: This article is a summary and compilation of a number of related articles published in Multifamily Dive
Further reading:
The transformation of the courtyard into a long-term rental apartment, the renewal and exploration of the city's architectural business card
Hotel transformation into long-term rental apartments, a new trend of urban renewal!