Which Cities Would Benefit Most from Converting Offices Into Housing?

Cities across the US are facing unprecedented commercial vacancy rates, as remote work becomes the norm for many employers and businesses. Meanwhile, the country has a shortage of approximately four million homes.

To solve two problems at once, local governments have begun to or are interested in incentivizing the conversion of vacant offices into residential units. One estimate points to 58,000 new housing units currently being built in the US from repurposed office space.

However, these conversions are infeasible for many buildings because of inoperable windows and larger floorplans that decrease window access. Land use restricted to commercial use and limited financing opportunities can also obstruct many projects. Despite these challenges, the pipeline of office-to-residential conversions remains strong.

Local governments can incentivize the conversion of underused offices to housing through policy, but where could policies of this kind be most effective and needed? In this post, I offer a ranking of cities in terms of disposition for conversions based on office and housing markets data. I find that the Bay Area, Seattle, Phoenix, Atlanta, and Denver could benefit the most from these interventions.

Which Markets Could Be More Disposed to Office-to-Residential Conversions?

Cities experiencing both acute distress in their office real estate market and a significant need to increase their housing supply have the most to gain from intensifying their efforts to enable and ease office-to-residential conversions.

To identify such places, I created a conversion disposition index made up of two composite subindexes: office distress and housing supply need. The first subindex considers three metrics in the office real estate market obtained from Cushman & Wakefield: absorption rates (the difference between office space newly vacated and newly moved into), office vacancy rates, and changes in asking rents over the previous year. The second subindex considers the difference between new households formed and new housing units created from 2010 to 2022, housing vacancy rates, and the rate of change in gross median rents over the previous decade. The conversion disposition index averages these two subindexes. This analysis excludes New York City because its office market data are structured in a way that doesn’t easily match the US Census Bureau’s housing data used for the housing supply need subindex.

According to the conversion disposition index, San Mateo County in California, Seattle, Phoenix, Atlanta, and San Francisco are the five places with the most conversion potential. The table at the end of this post shows the subindex and index values and rankings for all the 83 cities and places included in this analysis.

Expectedly, most of the top-ranked cities have high levels of both office distress and housing supply need. But there are exceptions. San Francisco is well below the median in the housing supply need subindex because its housing construction pace kept up with new household formation over the past 12 years, and it currently has a relatively high housing vacancy rate of 13 percent. Despite its housing supply stability, San Francisco has such an acutely distressed office market that the average of the two subindexes puts the city among the highest in terms of conversion disposition.

Conversely, a place like Colorado Springs has a healthier office market, but the strong need for increased housing supply puts it higher in the overall ranking. The figure below illustrates these contrasting values in the subindexes for the 20 highest ranking cities. Fort Myers, Florida, not shown in the figure as it ranks 76th in the conversion disposition index, also presents an interesting case, with the lowest level of office market distress but the eighth-highest level of housing supply need.

How Can Stakeholders Promote Adaptive Reuse of Office Space?

Local governments in all cities, but especially higher-ranked ones, should consider policies to promote adaptive reuse projects, such as the following:

• Reform land-use ordinances. Cities and states can create more flexibility of land uses in certain areas, as San Francisco has done, or directly change exclusive commercial zones into mixed-use zoning, as California is doing, by reforming land-use ordinances. Form-based codes or overlay districts are mechanisms that could be used to create flexibility in land use.
• Update building codes. In places with very restrictive building codes, cities can modify these codes to accommodate the unique requirements of residential conversions while maintaining the safety of new housing infrastructure, such as those related to minimum unit sizes, parking requirements, and light, ventilation, or fire safety standards (see the task force recommendation for New York City).
• Streamline the permitting process. Conversion projects that meet certain criteria may benefit from expedited review processes. California’s AB 1490 commits to reviews of no more than 60 days for adaptive reuse projects with 150 units or fewer.
• Offer tax credits or abatements. Cities may offer tax credits or property tax abatements to encourage conversions and bridge financing gaps, as DC is proposing. These are attractive options, not only for the developers but also governments, as they do not require upfront spending, and the forgone tax revenue may be lower than the tax revenue lost from an office building with a declining property value.

Adaptive reuse of office space can also have benefits beyond adding units to a city’s housing stock. To start, offices may be converted to other commercial, educational, or cultural uses. Office conversions can help revitalize downtowns—although their limited potential needs also to be acknowledged—and maintain property tax revenues in thecontext of declining office values. Finally, reusing office buildings is a more environmentally sustainable way to build.

Cities with more unused office space and relatively lower housing supply need—San Francisco, Los Angeles, or Minneapolis—can remain flexible in their conversion types, while places like Colorado Springs, Orlando, and Fort Myers will need to look beyond office conversions to boost their housing supply. Hotel-to-residential conversions, for example, surpassed office-to-residential conversions in 2023.

Office conversions will not be the sole answer to our housing crisis, nor will any other policy in isolation. But conversions offer an effective strategy for discrete and incremental changes in our cities. This analysis offers clues as to which cities may be better disposed to adaptive reuse of offices and to what extent these conversions should lead to more housing.

A more detailed and thorough analysis is necessary to determine what share of each city’s office stock is susceptible to conversions, based on the stock’s assessed value, age (older buildings would be easier to convert), class, materials, layout, and other architectural characteristics. This analysis could better inform what policies may be the most effective at lowering specific barriers in each market.



This piece was originally published on Urban Wire, the blog of the Urban Institute.