Rental Supply Shortage Leads to Sharp Uptick in Adaptive Reuse Projects
A severe shortage of rental housing units is leading a growing number of developers to consider adaptive reuse projects, particularly involving commercial office spaces with the potential to become multifamily apartments. Despite rising interest in office-to-residential conversions with 10,090 apartments created last year and 122,000 office conversions currently in the pipeline, the share of such adaptive reuse projects was lower in 2021 and 2022 than in 2019 and 2020.
The number of apartments resulting from adaptive reuse projects is expected to exceed 120,000 in the next several years, according to RentCafe, but the majority might not involve office spaces. Instead, hotel-to-apartment transitions have recently spiked to a five-year peak, accounting for 29% of all projects, Forbes reports.
The reasons are not hard to fathom. Hotel-to-apartment conversions are far easier to achieve than those from office buildings or the next most common sources: factories, healthcare buildings, warehouses, entertainment centers, schools, religious buildings and storage. Also contributing were such factors as the pandemic-era decline in demand from travelers, particularly for overnight stays in such high-profile tourist cities as San Francisco and New York.
RentCafe also found some cities were much more likely to see adaptive reuse projects completed in 2022 than others. Los Angeles, Calif.; Kissimmee, Fla.; and Alexandria, Va. crowned the roster of cities witnessing apartment conversions.