Workplace conversions are rising in popularity throughout the U.S. as constructing homeowners work to repurpose vacant area amid record-high vacancies and cities search to handle housing shortages, Yardi stated in its June 2025 Nationwide Workplace Report on Wednesday.
The common nationwide emptiness price remained excessive in Could at 19.4%, down 30 foundation factors from April however up 160 foundation factors yr over yr, based on Yardi Matrix knowledge.
Conversions, together with demolitions, will scale back U.S. workplace stock greater than new workplace area deliveries will add to it this yr, which ought to assist scale back vacancies and assist the market’s restoration, CBRE says in a report launched June 3.
Among the many 58 markets CBRE tracked, it expects 12.8 million sq. toes of area to be transformed to different makes use of this yr and a further 10.5 million sq. toes to be demolished. The agency estimates simply 12.7 million sq. toes of latest workplace provide.
Each conversions and demolitions have accelerated because the COVID-19 pandemic, with the U.S. conversion pipeline of deliberate and underway tasks reaching 81 million sq. toes throughout 44 markets in Could, per CBRE’s report. That is 1.9% of whole U.S. workplace stock, up from 1.7% of stock simply six months in the past, CBRE says.
The variety of conversion proposals has elevated yearly this decade, Yardi says. From 2018 to 2024, the U.S. averaged 58 workplace conversions yearly, CBRE notes; 2024 noticed 94 tasks totaling 13.1 million sq. toes accomplished. About 68 conversions totaling 12.8 million sq. toes are anticipated to be accomplished this yr, CBRE says.
Not all workplace buildings are appropriate for conversion, nonetheless. Many workplace buildings constructed within the Nineteen Seventies and Eighties have massive floorplates that make them much less appropriate for multifamily items, CBRE says. In consequence, older buildings account for over half of demolitions and solely 35% of conversions, based on the CBRE report. Constructing dimension and placement, rising development prices, much less labor availability and persistently excessive rates of interest additionally issue into conversion or demolition choices, including additional impediments, CBRE says.
Simply over 70% of deliberate and energetic workplace conversion tasks by sq. footage are conversions to multifamily housing, CBRE says. This is because of stronger fundamentals within the multifamily housing market, which has seen decrease emptiness charges and better rents in contrast with the workplace sector, and easing laws and incentives on the metropolis degree meant to handle housing shortages and improve property tax revenues, per the CBRE report.
“Whereas impactful on the native degree, [office conversions remain] a modest contribution to the nationwide housing provide,” the agency says.
Workplace conversions to life science makes use of have declined from their pandemic-era peak, once they had been the second-most-common kind of conversion and new development lagged demand, CBRE says. Now, inns have taken that spot, making up 8% of whole workplace conversions by sq. footage, per the report.
Execution varies by metropolis
Conversion exercise throughout the U.S. varies enormously by market, relying on constructing values, stock age, development prices and the provision of skilled builders, CBRE says.
Manhattan has one of many lowest emptiness charges within the U.S, that means unused area shortly turns into focused for adaptive reuse, per the Yardi report. New York Metropolis established the Workplace Conversion Accelerator program to help constructing homeowners and operators with conversions by analyzing the zoning feasibility of particular person tasks and serving to safe vital permits.
Manhattan at present has 10.3 million sq. toes of conversion area underway or deliberate, main the nation, CBRE says. Whereas that is partially as a consequence of market dimension, NYC Mayor Eric Adams’ “Metropolis of Sure for Housing Alternative” zoning reform can also be spurring conversion exercise, per the report.
As of Could, Boston had 15 office-to-residential conversion tasks totaling 762 items both proposed or permitted, with related conversion tasks shifting ahead in different Massachusetts cities like Worcester and Lowell, Bisnow reported Tuesday.
Massachusetts in March launched a brand new program to assist redevelopment of economic properties into housing. As a part of the Business Conversion Initiative, MassHousing allotted as much as $1 million in planning funds for technical help to those tasks, with the state additionally awarding thousands and thousands of {dollars} extra to workplace constructing landlords in downtown Boston and Worcester to transform their buildings, Bisnow reported.
San Francisco is working to extend its office-to-residential conversions by its Business to Residential Adaptive Reuse Program, which incorporates tax waivers and eliminates sure charges, Yardi says. Town, which has one of many nation’s highest workplace emptiness charges at 28.4%, additionally lately permitted the creation of a downtown revitalization financing district that goals to incentivize conversions by reinvesting the rise in property tax income that such tasks generate to assist offset growth prices, the corporate says.
“With the destruction of workplace values being realized, it now could be as much as cities to incentivize conversions to maximise potential, or on the very least, scale back the purple tape and laws that make an already troublesome challenge even tougher,” Peter Kolaczynski, affiliate director at CommercialEdge, stated in a press release.
