Special Briefing: Revitalizing Downtowns by Turning Offices Into Homes

Cities Turn to Office-to-Apartment Conversions to Revitalize Downtowns

• Pandemic spurs cities to rethink single-use office districts
• New York City aims to add 20,000 apartments in converted office buildings
• Washington mayor sets goal to convert 7 million square feet of offices for 15,000 new residents
• Conversions seen as solution for Class B offices, after values drop 70 percent
• Conversions require subsidies, eased regulations, advocates say

Conversions of office buildings into homes are key to reviving urban downtowns and protecting municipal tax bases after pandemic related work-from-home arrangements slashed demand for downtown commercial property, panelists said at a special briefing hosted by the Volcker Alliance and the Penn Institute for Urban Research.

“A lot of office buildings, in particular the more obsolete office buildings, have been struggling in terms of reaching occupancy levels that existed before the pandemic,” said Maria Torres-Springer, New York City’s deputy mayor for economic and workforce development, who keynoted the March 30 webinar. She said adapting office space for residential use could bolster property values while helping address an affordable housing crisis. The effort requires partnership among state and city officials on everything from zoning and land use regulations to tax incentives, she said. “We have to make those courageous choices,” she said, so the city can “not just recover from the pandemic but really thrive in its wake.”

Moderated by William Glasgall, Volcker Alliance senior director, public finance and Penn IUR fellow, and Susan Wachter, co-director of Penn IUR, the briefing was the fortieth in a series of sixty-minute online conversations featuring experts from the national research networks of the Volcker Alliance and Penn IUR, along with other leading academics, economists, and federal, state, and local leaders.

In addition to Torres-Springer, panelists included Stijn Van Nieuwerburgh, Earle W. Kazis and Benjamin Schore professor of real estate and professor of finance, Columbia University Graduate School of Business; Heather Long, columnist and Editorial Board member, Washington Post; and Amy Cotter, director of climate strategies, Lincoln Institute of Land Policy.

New York Mayor Eric Adams and Governor Kathy Hochul recently convened a task force of sixty experts to come up with what Torres-Springer called “a very concrete initiative: transforming what had been relatively single-use business districts into great places where people can work and play, strengthening employment hubs across the five boroughs.”

Office-to-apartment conversions could bring 20,000 new homes to the market, as the mayor pursues a “moonshot goal” of building 500,000 new homes in New York City over the next decade, Torres-Springer said. The task force identified more than one hundred rules and processes that should be streamlined to help speed housing production, including state regulations that need to be modified to enable conversions, she said.

Van Nieuwerburgh said that commercial property owners face a combination of economic and regulatory headwinds that have reduced the value of a typical Class B office building, which may be older or lack the amenities of fancier structures, by about 70 percent. “Office-to-apartment conversions are a very natural solution,” he said, noting that they are also expensive. “We need to bring in the government to help subsidize this,” he said, adding that modest tax abatements may be enough to make conversions viable. About $22 billion may be available to support conversions under environmental provisions of the Inflation Reduction Act of 2022, Van Nieuwerburgh said.

Washington Mayor Muriel Bowser has set a goal of 15,000 new downtown residents in the next five years, which would require the conversion of 7 million square feet of office space, Long said. Thus far, developers have purchased and plan to convert only about 1 million square feet. Long said a study by Gensler, a global architecture, design, and planning firm, found that only 30 percent of office buildings, at most, are logical candidates for conversion, so cities should pursue strategies in addition to residential conversion. Washington is depending on expansions of universities and other institutions to offset the drop in demand for office space, she said.

Cotter emphasized the importance of cooperation between cities and states, as they adapt downtowns to meet the needs of today’s work-at-home professionals, with an eye toward environmental sustainability.

“Cities are a creature of state government,” Cotter said. “States set the sources and rules by which cities can raise revenue, by which they can use redevelopment tools such as zoning flexibility. So that fiscal relationship and that partnership is really an essential element of redevelopment of downtowns.”