Multifamily buildings are an essential feature of any neighborhood. They provide housing for professionals, singles and families alike. Offices are another important part of an area’s makeup, since that’s where the professionals get the money to rent an apartment.
However, converting one space into another isn’t something you’d expect to happen every day. Nonetheless, realtors and housing market experts are finding that more and more developers are converting office buildings into apartments and condos, creating an unlikely trend.
Increased Conversions to Multifamily
U.S. developers built 39 million square feet of new office space in 2013. However, another 22 million square feet from office buildings disappeared in the same year. Some of it was demolished while the rest was converted into multifamily dwellings. The state of the office market is such that developers aren’t filling their buildings, thus losing out on income opportunity. The apartment market, on the other hand, has shown growth.
Driven by the Market
While office buildings have sat empty, apartments and condos have filled with residents. According to a research report by Freddie Mac, homeownership decreased when the economy slowed down. Families turned to rentals instead, as they were the more affordable choice.
The report predicts that the multifamily apartment market will be strong into 2015. Developers have sought the stability that the rental market affords, leading to the growing number of building conversions. Not only are they transforming out-of-date offices into residential buildings, but they are also converting their upscale office spaces into living quarters. More and more renters are looking to live in a trendy urban building, and an old vacated office just won’t cut it. Real estate use is shifting to focus more heavily on housing.
The Converting Process
Whether a developer is converting an old office into a new apartment or a trendy office into a similarly popular condo, they have a lot of work ahead. Undesirable offices must be completely renovated to include the type of features renters want, including an appealing aesthetic. Before setting the project in motion, developers must assess their property.
For starters, developers need to research the apartment market in their area, as well as the strength of other industries. Are people moving into the area? Are businesses expanding? What are other developers doing? A healthy market is the safest place to renovate.
Developers must also decide how much of a risk they are willing to take. Multifamily building codes are different than those for offices, so there’s a substantial amount of work that needs to be done before anyone can start moving in. Finally, developers need municipal approval in order to build.
Conversions are Worth It
The growing market trend of converting offices into multifamily dwellings certainly suggests that developers believe the reward for such a project is worth the risk. Of course, individual cases across the country are sure to vary. But the overall rate of turnover may be a good thing in cities where residential living space is running out. An increase of apartment and condo units could potentially decrease the price of renting, as the supply is growing. However, it would take a long time for supply to catch up with demand.