Office-to-Resi Conversions Set Record 71K Units

The office-to-residential boom is hitting new highs, but high construction costs, zoning hurdles, and slow approvals could keep many projects stuck on the drawing board.

Jordan B.
February 03, 2025

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Good morning. The pipeline for office-to-residential conversions has tripled in just three years, hitting a record 70,700 units—but with construction challenges and policy hurdles, only a fraction may actually come to market.

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🎙️ No Cap is back for Season 2! Co-hosts Alex Gornik and Jack Stone break down the biggest CRE headlines to kick off the year. Watch or listen now!

Market Snapshot

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adaptive reuse

Office-to-Resi Conversions Hit Record 71,000 Units—But How Many Will Deliver?

The office-to-residential boom is hitting new highs, but high construction costs, zoning hurdles, and slow approvals could keep many projects stuck on the drawing board.

Gaining momentum: Fueled by rising office vacancies, housing demand, and new incentive programs, office-to-residential conversions now make up 42% of all adaptive reuse projects, per RentCafe. Just three years ago, only 23,100 units were in the pipeline—by 2025, that number has nearly tripled to 70,700.

New York City leads with 8,310 units in the pipeline, boosted by state and local incentives. Major players like SL Green and GFP Real Estate have ramped up acquisitions of conversion-ready properties.
Washington, D.C. follows with 6,533 units, as its 20-year tax abatement program under the Housing in Downtown initiative continues to attract developers.
Los Angeles has 4,388 units in development, marking an 80% increase from last year as local policies shift to encourage conversions.
San Francisco, Minneapolis, and other cities are also rolling out regulatory changes to ease conversions, from streamlined permitting to dedicated financing districts.

Out with the old: Conversions are no longer limited to century-old buildings. While just 1.3% of completed conversions involved offices built between 1990 and 2010, these newer buildings now account for over 7% of planned projects—a sign that developers are targeting properties that require fewer costly structural upgrades.

➥ THE TAKEAWAY

The execution gap: Office-to-resi conversions are booming on paper, but only a small fraction actually gets built each year. With 1.2B SF of office space considered suitable for conversion, cities must cut red tape and increase financial support if they want to turn these ambitious plans into real housing solutions.

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✍️ Editor’s Picks

Boosting Tax Deductions: By leveraging the combination of Cost-Segregation and Section 179D tax strategies, commercial real estate investors can unlock significant tax savings. (sponsored)
RV storage play: Gary Wojtaszek, former CEO of CyrusOne, is raising $500M with Goldman Sachs (GS) to expand RecNation, a fast-growing RV and boat storage company.
Rising demand: Core capital fundraising tripled in 2024, reaching over $10B compared to $2.5B in 2023, per Cushman & Wakefield.
Tariff turmoil: President Trump has imposed new tariffs—25% on goods from Mexico and Canada, 10% on Chinese imports—raising concerns about inflation, construction costs, and potential backlash from trading partners.
CMBS delinquencies: Office loan trouble still dominates the CMBS market, but rising multifamily distress is adding new pressure to an already shaky landscape.
Pacific Park Shakeup: Cirrus Real Estate is set to replace Related as co-developer of Brooklyn’s Pacific Park, pending foreclosure and state approval.

🏘️ MULTIFAMILY

Making progress: Flagstar Financial is lowering exposure to troubled CRE loans, cutting $4.7B from its balance sheet as part of a financial overhaul.
Perth Amboy Project: Kushner Companies is close to securing approval for a $200M development of 602 apartments on the Perth Amboy waterfront.
Rent surge: Seattle apartment rents are rising for the first time in 17 months, though experts say Amazon’s return-to-office mandate may not be the primary driver, with slowing new construction playing a bigger role.
San Diego setback: San Diego has canceled plans for a 402-unit affordable housing project downtown, citing funding shortages and the high value of the city-owned land.
Denver drop: A surge of nearly 20,000 new apartments in 2024 led to a record 3.6% quarterly rent decline, with more pressure expected in 2025.

🏭 Industrial

Dallas storage deal: Hines and CubeSmart have partnered on a joint venture to recapitalize a 14-property, 1.25 million-square-foot self-storage portfolio in Dallas-Fort Worth.
Settle down: Tech giants dismiss fears that DeepSeek’s AI model will curb data center demand, doubling down on major infrastructure investments.
Charlotte expansion: Stonelake Capital acquired a 123,140-SF industrial facility for $13.5M, marking its second off-market purchase in the metro.
Texas Megasite: Xebec is transforming a 3,300-acre former aluminum smelter near Austin into an advanced manufacturing hub with abundant power and logistics access.

🏬 RETAIL

Expansion: Simon Property Group plans to develop a 325,000-square-foot luxury retail and lifestyle center near Nashville.
Triple dip: A viral TikTok campaign helped Chili’s boost sales by 31%, attracting younger customers and fueling expansion plans.
Lock it in: DLC secured $41.7M in financing for its $61.7M acquisition of Danada Square West, a grocery-anchored center in Chicagoland.

🏢 OFFICE

Dell's RTO push: Dell is mandating a full-time office return for employees within an hour of an office, joining other corporate giants in tightening in-office policies.
Doubling down: NVIDIA plans to acquire a 500,000-SF office campus in Santa Clara, doubling its Silicon Valley footprint.