As inventory shortages fuel the current housing crisis, U.S. cities are converting commercial space into residential space. In 2023, the number of apartments built in buildings originally designed for other purposes rose to about 12,700 completed units, according to a RentCafe report. This is an increase of nearly 18% compared to 2022, when about 10,800 units were built.
About a third of these conversions, known as “adaptive reuse apartments,” were hotels and 28 percent were former office buildings. This is his first time since 2012, with more construction coming from hotels than offices. Of the remaining new units, 15 percent were former factories, 9 percent were former warehouses, and 12 percent were a mix of other building types.
Last year’s increase was a return to a long-term upward trajectory. RentCafe’s report dates back to 2010, when a total of 6,091 adaptive reuse units were created. The number peaked in 2017 at 16,533 apartments, and from 2018 to 2021, an average of about 12,300 apartments were created each year.
In many cities, it takes one big project to bring about change. Manhattan unveiled the most units at a former hotel last year, with 733 units, most of them at 525 Lexington Avenue in the former New York Marriott East Side, which is now student housing. Peachtree Corners, Georgia, a suburb of Atlanta, converted the most offices into apartments by repurposing a single office building, with 295 offices.
Hotels are generally easier to adapt to residential use because individual rooms are already available. In recent years, declining tourism and rising debt costs have spurred some hotel owners to sell and convert distressed properties.
Office buildings typically require more complex renovations. According to RentCafe analysts, office conversions increased after the Great Recession as older office buildings with more convertible layouts became available. Currently, they will once again surpass hotels and dominate the adaptive reuse market based on units already planned and under construction. why? More office space became available as rental demand decreased due to increased remote work.
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