Transforming Empty Offices: New Index Shows Top Prospects for Housing Conversions

By Katie Borchetta · August 28, 2024

According to the most recent CommercialEdge office report, there’s a new tool for identifying prime candidates for converting office buildings into housing. Because remote and hybrid work has become more and more common since the pandemic, the trend of turning vacant offices into housing has gained traction among property owners. While it is still a niche market, the new Conversion Feasibility Index (CFI) from CommercialEdge shows that there are more practical ways of converting these office spaces into housing, than originally thought. The index ranks buildings on specific factors, such as, size, location, age, accessibility and more.

From those rankings they are sorted into three tiers. Tier I buildings are the best candidates for this type of conversion, while Tier II follows with strong potential, but some modifications will need to be made to make the property livable. Tier III buildings have significant challenges after being analyzed by the CFI. Roughly 2.7% of all office spaces are put in the Tier I, with 12.1% in Tier II with most of those categories being found mostly in cities.

Despite the challenge these projects bring on, strides are being made. For example local governments in cities such as New York City are trying to introduce programs to start the conversion of these buildings and with office property values down significantly since 2021, it makes the projects financially attainable.

By the end of July the office vacancy rate climbed to 18.1% nationally, 1% higher than it was last year and it has risen in nearly every city.

This concept of “Real Estate Darwinism,” which is the adaption of properties so they can survive in an ever-changing market, has the potential to take one decreasing market and help another by providing housing in a housing market that currently has short supply. While these projects are challenging and require a lot of creativity, their long-term viability is still uncertain, but as long as office buildings’ vacancy rates are at a low, the opportunity to solve this problem of housing can persist.