From boardrooms to bedrooms, as remote work continues to starve urban workers and face empty offices, massive reimaginings are underway across the country to transform workplaces into residential spaces.
according to a report Cafe for rent“Adaptive reuse” – the term for the process – will see 151,000 new apartments built this year, up from 122,000 last year, a 24% increase and a 17.6% increase on the year before.
This trend is necessary to prevent property owners from going bankrupt and cities from losing much-needed tax revenue. A study completed in November 2022 by researchers at New York University Stern School of Business and Columbia University estimated A decrease of $664.1 billion Real estate asset values continue to grow Remote work trends.
New York and Los Angeles head conversion
Much of this involves the repurposing of hotels –easier It’s not just office spaces that are being remodeled; office spaces are being remodeled too, with Manhattan leading the way. A few involve retrofitting industrial buildings such as factories. The largest project in Manhattan to date is 525 Lexington Avenue. The building now houses 655 student apartments.
Los Angeles plans to renovate 5,881 units this year, while Manhattan has 4,363 units. Office renovation is at the top of many cities’ agendas. because Additional considerations, such as window, plumbing and electrical remodeling, office remodeling takes longer than hotel remodeling. However, they are still considered an environmentally friendly alternative to demolishing a building and starting from scratch.
“This process minimizes the environmental impact of demolition and new material production, making it an environmentally friendly design and construction method,” Doug Ressler, business intelligence manager at commercial real estate data firm Yardi Matrix, told the outlet. Information reported by RentCafe. “Although these [office] Buildings pose challenges for conversion to residential space due to factors such as building age, size, configuration and location, and repurposing them can help alleviate the shortage of rental units at various price points, especially where vacant or underutilized buildings are prevalent area.
taxes, housing and vitality
Immediate advantages of additional urban residential space include:
- More taxes.
- Vibrant 24/7 community.
- Nearby restaurants and businesses are doing brisk business.
- Healthier urban ecosystems.
about 11% of U.S. office buildings are good candidates for renovation, but one forbidden questions It’s a fee. The resulting apartment or condo would have to be high-end to pay for the work. this It will do nothing to alleviate the affordability crisis facing many cities.
However, a Gensler’s research Said office remodeling costs less than one-third of the cost of new construction. Combine this with developer incentives such as new legislation Providing a 20% credit for developers on qualifying property improvement expenditures — provided at least 20% of the final units are affordable housing to qualify — large-scale office renovations could provide a way to revitalize urban centers, Providing much-needed affordable housing is ongoing.
Benefits for real estate investors
In the short term, the additional tax revenue allows cities to run better. This means real estate taxes for residential landlords in city boroughs will not skyrocket, and essential city services such as health, police, education and fire protection will be better funded, making the city a better place to live. Additionally, adding affordable, much-needed inventory to the market can stabilize or even reduce exorbitant prices, allowing more people to stained housing ladder and create a more balanced city of full-time residents.
In the long term, as cities become desirable places to live and socialize, as happens with cities like this Detroitthe chain effect makes the entire Citycausing real estate values to appreciate.
Invest in city apartments
Investing in apartments is an excellent strategy for passive income. According to the National Association of RealtorsSince April 2023, the median sales price of a single-family home increased 5.6% to $412,100, while the median sales price of a condominium increased 5.4% to $365,300.
Although city apartments may be more expensive than elsewhere, the fact that owners pay maintenance fees means that the building’s common areas, grounds, and amenities are well maintained, sparing investors the headaches associated with single-family homes. Like other property types, apartments offer appreciation while cash flow and tax relief.
The downside to apartments is that, due to extremely low maintenance costs, overseas investors often buy apartments in all-cash deals as a safe haven to park their funds while living elsewhere, resulting in many buildings being semi-rented.
overall view
According to commercial real estate brokerage firm Jones Lang LaSalleConverting office buildings into residential and other in-demand uses can provide a windfall for commercial real estate investors. In fact, 90% of global real estate investors believe that a former office is the best option The usage will be Residential property.
Other uses mentioned include:
- Industrial Storage and Data Center.
- Hotels and leisure.
- student or senior housing.
That is, assuming Aspects of construction that could enable conversionFinancial barriers may still causing problems.
“If the office was purchased using an office-specific investment fund, converting to a different use will typically require selling the property first and obtaining alternative financing,” Raphaelle Bour, Work Update Chief Project ManagerJLL said on its website. Bull noted that many cities have jumped on the bandwagon of tax incentives and zoning subsidies, adding: “Policymakers are also streamlining previous barriers to transition in hopes of reducing the number of stranded assets where the cost of upgrading exceeds their value.”
The added value proposition of older buildings can offset the risks
“Investors have the opportunity to acquire vacant office buildings, repurpose them and establish new operators,” Bull said. “Then they can offer the market assets with ten years of safe cash flow, something There is currently high demand and many large investors are creating diversified funds for this type of business.
final thoughts
Offers for repurposing office buildings Opportunities for both sides smaller residences and more prominent business investor. For small business owners Multifamily Continued healthy social and financial ecosystems in large cities mean an adequate supply of tenants, maintenance of basic services, and increasing home values.
for passive investor, the supply of new apartments on the market provides the opportunity to invest in a hands-off, appreciating asset. Depends on your city short term rental Under the rules, the property can be used as an Airbnb, allowing you to stay in your own place while you’re in town.
For larger investors and syndicates, the myriad of potential adaptable uses for older office buildings means that the value-added proposition will not only bring financial benefits, but also the opportunity to future-proof, in-demand businesses, such as as a A data center that is not dependent on tenants and therefore is less risky than a data center that relies on ongoing maintenance, monthly rent, and high occupancy rates.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
