Office Conversions Surge in the U.S.: Doubling Expectations and Transforming Urban Landscapes

Office conversions in the U.S. are set to more than double the recent annual average this year, as per global property consultant CBRE. Increased incentives and support from state and local governments are driving this momentum. CBRE's analysis of major U.S. cities since 2016 reveals nearly 100 office conversion projects expected to be completed in 2023, a substantial rise from the annual average 41 from 2016 to 2022.

In the 40 markets tracked by CBRE across the U.S., plans or ongoing efforts for 60 million sq. ft. of office conversions constitute 1.4% of the total U.S. office inventory—up from 1.2% in Q4 2022. Of the conversions this year, 48% turned offices into multifamily residential complexes. The shift towards office-to-mixed-use conversions is noticeable, making up 18% of the pipeline, compared to 7% in Q4 2022. On the other hand, conversions to life sciences labs represent 19%, down from 28% in Q4 2022.

Cities like New York and Chicago have recently implemented zoning code changes and established public-private partnerships to enhance the financial feasibility of conversions. Such initiatives often aim to convert office buildings into much-needed affordable and/or zero-emissions housing.

CBRE President of Investor Leasing, Mike Watts, emphasised that converting offices is a multifaceted process, and government support signals to developers that efforts are being made to make the process financially feasible and predictable. This growing trend in conversions could contribute to revitalising downtown areas affected by changing workstyles that reduce the demand for office space.

Notably, markets with higher-than-average conversion percentages generally have older office buildings with higher vacancy rates. For instance, Cleveland has the highest percentage of its office stock targeted for conversion at 11% of the total inventory. In contrast, Boston has the most significant conversion footprint at 6.1 million sq. ft., constituting 3% of its office inventory.

CBRE is tracking 60 conversion projects to be completed in 2024, including 42 currently underway and another 18 in the planning stages. Julie Whelan, CBRE Global Head of Occupier Research, emphasises that while conversions offer a solution, addressing the challenges in the office market will require strategic city planning to transform former office districts into highly desirable mixed-use areas for people and businesses.