Underutilized Offices to Homes: The Rise of Office-to-Residential Conversions
The COVID-19 pandemic and remote-work revolution have left U.S. cities grappling with millions of square feet of underutilized office space. At the same time, these cities face an acute housing shortage - by some measures the worst housing crisis of the postwar era brookings.edu. This confluence of trends has set the stage for a surge in office-to-residential conversions, a concept once niche but now rapidly gaining traction in commercial real estate (CRE) realtyads.com. Developers and policymakers alike are increasingly eyeing obsolete office towers as a new source of much-needed housing, aiming to turn downtown “ghost skyscrapers” into vibrant apartment buildings. By 2026, this adaptive-reuse movement is projected to be a major force reshaping urban cores and real estate markets across the country. In this article, we explore the drivers behind the trend - from pro-conversion policies and economic pressures to design hurdles - and examine how leading cities like New York, Chicago, and San Francisco are navigating the office-to-housing transformation.
Policy Tailwinds: Incentives and Zoning Reforms Driving Conversions
City and state governments have recognized that office conversions often need a push to be financially feasible. In response, a wave of policy initiatives, tax incentives, and zoning changes are rolling out to “de-risk” these projects for developers callan.com urbanland.uli.org. Many programs aim to offset the extra costs of conversion or streamline approvals, effectively sharing some of the burden to attract private investment. Below are some of the key policy mechanisms emerging across the U.S.:
Tax Abatements and Exemptions: Several cities offer property tax relief for office buildings that convert to residential use, especially if they include affordable housing. For example, New York State’s new “Program 467-m” (enacted in 2025) grants substantial tax exemptions - up to 35 years – for office-to-residential conversions that reserve at least 20–30% of units as affordable callan.com. New York City also launched an Office Conversion Accelerator in 2023 to fast-track such projects, and its “City of Yes for Housing” zoning amendments in 2024 encourage more flexible reuse urbanland.uli.org. Similarly, Washington, D.C. introduced a Housing in Downtown incentive in 2024, offering a 20-year tax abatement for qualified office-to-apartment conversions in the downtown core rentcafe.com. These long-term tax breaks significantly improve project economics by lowering operating costs for decades.
Direct Subsidies and Financing Support: Some jurisdictions are directly subsidizing conversions to jump-start downtown revitalization. Chicago, for instance, is leveraging Tax Increment Financing (TIF) to fund its “LaSalle Street Reimagined” initiative. Across six major Loop office conversions (including the landmark 135 S. LaSalle and 111 W. Monroe projects), the city has approved roughly $321 million in TIF funds to leverage nearly $900 million in private investment, helping bring 1,765 new mixed-income apartments online propmodo.com. In these deals, the TIF subsidy covers costly gaps (like adding modern plumbing or meeting affordable housing requirements) by essentially reinvesting future tax gains from the revitalized property propmodo.com. Chicago also layers in historic preservation tax credits and low-income housing tax credits on qualifying projects, making these complex capital stacks work. The result: roughly 30% of the new units are designated affordable, aligning with policy goals while still enticing private developers propmodo.com.
Zoning Changes for Flexibility: Outdated zoning that rigidly separates commercial and residential use can be a major barrier to conversions. Cities are responding by loosening these rules. New York City’s zoning is already relatively flexible – developers can convert many office buildings as-of-right (without special approvals) as long as they meet use and density standards urbanland.uli.org. This by-right development clarity has been a “gold standard” enabling New York’s conversion wave urbanland.uli.org urbanland.uli.org. In contrast, Los Angeles historically allowed adaptive reuse by-right only in certain downtown zones, but L.A. is now drafting a citywide ordinance to permit conversions by-right in more neighborhoods and even for buildings as young as 15 years old urbanland.uli.org urbanland.uli.org. This would massively expand the pool of eligible buildings. Other cities, like Minneapolis, have removed procedural hurdles – Minneapolis recently eliminated public hearing requirements for conversion approvals, speeding up the process rentcafe.com. And in California, a new state law (Assembly Bill 1490) caps review periods for qualifying office-to-housing projects at 60 days, preventing conversions from languishing in permitting limbo callan.com.
Fast-Track Permitting and “Anything Goes” Programs: Time is money in development, so some governments are creating special programs to expedite conversion projects. Washington, D.C.’s “Office-to-Anything” program (launched in 2025) offers a 15-year tax freeze for converting offices not just to housing but to any other use (such as hotels or schools) urbanland.uli.org. The goal is to encourage creative diversification of downtown beyond just apartments. Meanwhile, D.C.’s parallel housing-focused incentive (noted above) works in tandem to add 15,000 residents downtown by 2028 urbanland.uli.org. Across the Potomac, Arlington County, VA adopted an adaptive reuse policy in late 2024 that streamlines approvals and amends zoning to allow both residential and mixed-use conversions by-right urbanland.uli.org. Within 90 days of launching, Arlington’s program received proposals totaling ~800,000 square feet of office space to be repurposed – about 3% of the county’s office inventory - illustrating significant pent-up interest once red tape is cut urbanland.uli.org urbanland.uli.org.
Financial Incentives for Affordability: Policymakers are also tying conversion incentives to social goals like affordable housing. Many cities require or encourage a percentage of units to be affordable in exchange for tax breaks or funding. For instance, New York City mandates that converted buildings include at least 20–30% affordable units to qualify for its new tax exemptions (e.g. the 467-m program offers up to 50% tax abatement for 30 years if 30% of units are affordable) rentcafe.com. Washington, D.C.’s downtown housing abatements similarly come with affordability requirements (e.g. 8% of units at 60% AMI) rentcafe.com rentcafe.com. This ensures that conversions contribute to inclusive housing goals, not just luxury development. While such requirements can complicate project finances, cities are often pairing them with subsidies (as in Chicago) to make the numbers work.
Crucially, these policy efforts signal that governments “recognize that developers in today’s challenged capital environment need help from the municipality to move forward” with conversions urbanland.uli.org. Without incentives, the “conversion math” rarely works urbanland.uli.org - high construction costs and uncertain rental revenues can yield too low a return. By reducing taxes, offering grants or low-interest loans, and clearing regulatory hurdles, public leaders are trying to tip more projects from infeasible to feasible. The early evidence is promising: cities that implemented adaptive-reuse programs prior to or during the pandemic (New York, L.A., D.C., Chicago, etc.) are now leading the nation in conversion activity urbanland.uli.org. In short, policy tailwinds are aligning with market needs to accelerate the office-to-residential trend.
Economic Forces: Remote Work, Housing Shortages, and CRE Pressures
Underlying this conversion boom is a powerful economic equation. On the supply side, remote and hybrid work patterns have permanently reduced demand for office space, leaving record-high vacancies and stranded value in older office buildings. On the demand side, most U.S. cities are starved for housing, especially affordable rentals, with vacancy rates for apartments often in the low single-digits. This imbalance – too much empty office space, too little housing – creates a clear opportunity if the pieces can be put together.
Office Market Distress: Even as of mid-2025, the nationwide office vacancy rate hovers around 19–20%, nearly double pre-pandemic levels realtyads.com urbanland.uli.org. Major urban centers have been hit hardest, especially in Class B/C office stock (older, less amenity-rich buildings) that tenants have been abandoning in favor of newer Class A space or remote-work arrangements realtyads.com. For example, San Francisco’s office market – once white-hot – saw average office property values plunge ~80% from their 2019 peak (from ~$1,200 per sq. ft. to ~$240) callan.com. Office sales in 2023–2024 in SF and other cities have cleared at prices not seen since the early 2000s callan.com. Similar dramatic repricing is evident in markets like Boston callan.com. These depressed valuations, combined with high interest rates and a wave of maturing office mortgages, have put many office landlords in distress. The silver lining: falling prices make it easier for adaptive-reuse developers to acquire obsolete offices at favorable terms, often via “distressed asset” sales or foreclosures callan.com. In essence, the building that was worth $100 million a few years ago might be bought for $20–30 million today - a drastically lower cost basis that can finally make a residential conversion pencil out financially callan.com.
Housing Demand and Urban Revitalization: At the same time, American cities desperately need more housing. The pandemic did not eliminate the housing crunch; in many places it worsened it. Nationally, the rental housing shortage is measured in the millions of units, and cities from coast to coast have seen skyrocketing rents and low apartment vacancy. Multifamily demand remains strong even as office demand falters realtyads.com. This is partly due to demographic trends (e.g. the large millennial cohort in prime renting years) and the high cost of homeownership pushing people to rent. Moreover, vibrant downtowns now rely on having 24/7 residents to support local businesses - a lesson reinforced by the pandemic. Converting empty office towers into apartments can “bring vitality back” to office-heavy districts by adding a built-in residential population urbanland.uli.org. As one urban planner noted, vacant buildings with boarded-up retail have “detrimental effects on the community, small businesses, safety, and tax revenue”, whereas filling them with residents can shorten the blight period and jump-start neighborhood recovery urbanland.uli.org. In other words, cities see office-to-housing conversions not only as a housing solution but as an economic development and fiscal strategy to backfill lost jobs and tax base.
Win-Win Economics (In Theory): On paper, the adaptive reuse equation is compelling. Developers can buy low (given office distress) and, by tapping into strong housing demand, raise the value of the asset post-conversion. Office buildings valued on shaky income streams (or no income at all if vacant) can be transformed into apartments generating stable rental cash flow - a classic value-add play. Studies show that converting offices to residential can “significantly increase asset value and stabilize income streams”, turning a struggling office into a high-demand multifamily asset realtyads.com. For investors, this presents an attractive opportunity to reposition or “upcycle” a property from a dying sector to a thriving one realtyads.com. Indeed, by late 2024, the economics had shifted so favorably that projects which were unfeasible in 2022–23 suddenly became viable: 73 office conversion projects were completed in 2024 (up from 63 in 2023), and another 300+ projects are in planning or construction nationwide callan.com. Roughly three-quarters of these pipeline projects are residential conversions (the rest being other new uses), which could yield about 38,000 new housing units in the coming years callan.com.
Of course, these numbers are still a drop in the bucket relative to the overall market - current and planned office-to-residential projects amount to only ~1.7% of U.S. office inventory by square footage callan.com. Not every empty office can (or should) be turned into apartments, and many owners are still in a holding pattern hoping for an office rebound. But the momentum is clearly building. Many real estate experts now believe a significant portion of the nation’s office stock will ultimately be repurposed: estimates range from 8% to as high as 20% of U.S. office square footage may convert to other uses over the next decade or two urbanland.uli.org. In some high-vacancy downtowns, that could be even higher. One recent analysis found over 1.2 billion square feet of U.S. office space – roughly 15% of total inventory - is “suitable” for residential conversion under current market conditions rentcafe.com. That represents an enormous potential pipeline if economics allow. In short, remote work created an office space glut at the same time the housing crisis created unprecedented demand - office-to-residential projects sit at the intersection of these trends, attempting to solve two problems at once. The convergence of cheap buildings and expensive housing is the fundamental economic catalyst for this trend.
Design and Construction Challenges in Office Conversions
Converting an office tower into homes is not a simple flip of a switch. These projects face a gauntlet of architectural, engineering, and technical challenges that can make them far more complex than either a standard office renovation or a ground-up apartment build. Understanding these hurdles is key to assessing which buildings are viable candidates and why many projects still don’t make financial sense without subsidies.
“Good Bones” vs. the Wrong Shape: The basic geometry of an office building can determine its conversion fate. Buildings with the wrong shape are essentially impossible to convert urbanland.uli.org. A chief metric is the floor plate depth - the distance from a building’s core to the exterior windows. Apartments need natural light and operable windows in living areas and bedrooms, so very large, deep floor plates leave too much windowless interior space. As a rule of thumb, a floor depth of around 35-40 feet from window to core is ideal for residential units urbanland.uli.org. This typically allows a double-loaded corridor with apartments on both sides, each unit about 30-35 feet deep. In contrast, many 1980s–2000s office towers were built with massive floor plates (100+ feet across or more), yielding interior zones that would be “cave-like” and unacceptable for habitation enterprisecommunity.org iapmo.org. Converting such buildings might require drastic interventions - e.g. carving out a central atrium or light well or even slicing off portions of floors - to bring light into the middle of the structure callan.com. Those interventions add significant cost and complexity. This is why many of the successful conversions so far target older office buildings (from the mid-20th century or earlier): mid-century office towers often have narrower floorplates and more windows per square foot, making them more easily adaptable to housing realtyads.com. High-rises from the 1950s–1970s, for example, often feature elongated I-shaped or H-shaped floor plans that maximize window offices - ironically a boon for residential layout decades later. In short, not every empty office is a viable apartment building - the structural bones must align with residential needs.
Vertical Infrastructure (MEP Systems): A major technical hurdle is installing all the plumbing, mechanical, and electrical (MEP) systems that a residential building requires. Offices have relatively few bathrooms (usually grouped in a core) and no showers or kitchens, whereas an apartment conversion means adding dozens or hundreds of kitchens and bathrooms spread throughout each floor. This entails threading a dense network of new plumbing lines (hot/cold water pipes, drain stacks, ventilation ducts) vertically through the building. Often, new shafts have to be cut through each floor to accommodate these services, which can be disruptive and expensive. In fact, mechanical, electrical, and plumbing upgrades are typically the single largest cost in conversion projects urbanland.uli.org. One analysis notes that these core system retrofits can comprise up to 1/3 of the total project budget, exceeding even the costs of cosmetic interior build-out urbanland.uli.org. For example, adding modern HVAC (heating, ventilation, air conditioning) may require installing new risers and potentially rooftop units or chillers to handle a residential load. If the building’s existing elevators, fire stairs, and electrical capacity aren’t sufficient for a residential occupancy (which often has different peak usage patterns), those too must be upgraded or augmented. All of this work must be squeezed into an existing structural framework not designed for it.
Ceiling Heights and Structural Constraints: On the bright side, many office towers offer generous floor-to-ceiling heights that can translate into attractive living spaces. A typical office floor might have 11 to 14 feet from slab to slab urbanland.uli.org, which after running new mechanical ducts still allows for ~9-foot ceilings in a residential unit urbanland.uli.org. High ceilings are a plus for apartments, so this is one area where offices often have an advantage. Structurally, office buildings also tend to be “overbuilt” (to support heavy office loads), meaning they can handle the weight of added kitchens, bathrooms, and even new amenity levels or rooftop decks. However, some structural elements can complicate unit layouts - e.g. large interior columns that might end up awkwardly in the middle of a living room, or non-uniform floor grids that don’t match typical apartment dimensions. In many cases, architects must get creative in unit planning to work around column spacing or angular footprints urbanland.uli.org. Also, if an office building has an abundance of glass curtain-wall facade, residential conversion may require adding operable windows or even balconies for code compliance and marketability - retrofitting a facade can be 15% or more of the hard costs if extensive window replacement is needed urbanland.uli.org. Conversely, buildings with punch windows (concrete facade with openings) might be more cost-effective to adapt urbanland.uli.org.
Fire, Safety, and Code Compliance: Changing an office occupancy to residential triggers a host of building code requirements. More kitchens mean greater fire hazards (grease, etc.), so sprinkler systems often need upgrades or complete installation if not already present. Residential codes may require higher redundancy in emergency exits, so additional stairwells or improved egress signage might be needed. Accessibility (ADA) is another factor - converting to residential could require adding wheelchair ramps or re-grading entrances, especially if new amenities like gyms or common areas are introduced. Parking can be an issue too; older offices might not have enough parking for hundreds of residents (or any parking at all). Some cities are relaxing parking minimums for downtown conversions, recognizing that residents in transit-rich areas may not need 1:1 parking. Still, developers must consider how to provide at least some parking or offer alternatives (car-share, bike rooms) to make the building marketable.
Time and Cost Overruns: Even when a building is a good physical candidate, conversions can be notoriously time-consuming. Vacant office buildings are easier to convert than partly occupied ones – if existing office tenants have leases, a developer might have to wait years for them to vacate or buy out their leases early urbanland.uli.org. Every month a large building sits partially empty but not yet under construction is a drain on finances, so carrying costs mount. Once construction begins, unforeseen conditions are common. Developers often uncover surprises like asbestos insulation, ancient wiring, or structural deterioration that must be remediated. These unknowns make conversion costs range widely – according to CBRE, the cost to retrofit an office to apartments can range from $100 to $500 per square foot depending on the building’s condition and complexity realtyads.com. For a 200,000 sq. ft. building, that implies anywhere from $20 million to $100 million in renovation costs - an enormous swing. Industry estimates generally put full conversion costs at around 20-40% less than building a new residential building from scratch, primarily because the foundation, frame, and often the facade is reused urbanland.uli.org. But that savings only materializes if the project avoids major delays. “Time is the biggest factor that makes or breaks conversions,” notes one ULI study - the speed of approvals and construction can determine whether a project is feasible urbanland.uli.org. Cities like Calgary achieved conversions in as little as 12 months by waiving change-of-use permits and expediting reviews urbanland.uli.org urbanland.uli.org, whereas in San Francisco it famously took four years just to start the city’s first post-pandemic conversion (the 19-story Humboldt Bank Building) due to funding and regulatory hurdles sfstandard.com. Every month saved in pre-development and construction is money saved - an imperative given that interest rates and financing costs for these projects are currently high.
In summary, office-to-residential conversion is a technically challenging endeavor. The best candidates are typically older, smaller-floorplate buildings with “good bones” (solid structure, ample windows, high ceilings) and layout proportions that can accommodate apartments without extreme surgeryurbanland.uli.orgcallan.com. Even then, adding all the necessary plumbing, ventilation, and amenities is a costly puzzle. These challenges explain why, even with many offices sitting empty, relatively few have actually been converted so far - the easy ones get snapped up, but plenty of buildings are just too expensive to fix. It also underscores why public incentives (discussed earlier) are often needed to tip the balance on marginal projects. The next section will look at how these dynamics are playing out in volume - how many conversions are happening and where.
Surging Conversion Volume: Market Trends and Data
Pipeline of U.S. office-to-residential conversion projects at the start of 2025 reached about 70,700 future apartment units, a 28% increase year-over-year. Conversions have rapidly accelerated since 2020, as illustrated by the jump from roughly 55,300 pipeline units in early 2024 to over 70k by early 2025 rentcafe.com. However, completions lag behind proposals - in 2024 only ~3,700 units were actually delivered (the rest rolled into 2025’s pipeline) rentcafe.com.
By all measures, office-to-residential conversions are at record levels, and the trend is accelerating heading into 2026. Just a few years ago, these projects were relatively rare - in 2018–2019, only a few thousand apartment units a year were coming from office conversions rentcafe.com. But post-pandemic, the numbers have skyrocketed. According to an analysis by RentCafe (Yardi Matrix), the pipeline of future office-to-apartment conversions grew from 23,100 units in 2022 to 45,200 units in 2023, then to 55,300 in 2024, and now stands at 70,700 units in 2025 rentcafe.com. In percentage terms, that’s over a 200% increase in pipeline volume in just three years, an unprecedented growth curve for adaptive reuse. Industry observers project that 2026 could see this pipeline translate into a wave of actual project starts and completions as many of these plans come to fruition.
To put this in context, office-to-residential conversions have become the fastest-growing segment of adaptive reuse in real estate. They now account for about 42% of all future adaptive reuse apartments nationally, outpacing conversions of hotels, factories, and other building types rentcafe.com
(By comparison, hotel-to-residential is the next largest category at ~22%, and others like factory/warehouse conversions make up smaller shares.) The rising office vacancy and declining values have made offices the top target for creative reuse, a shift from prior decades when industrial loft conversions or hotel conversions were more common.
It’s important to note that there is a big gap between projects announced or in planning and projects delivered. As the RentCafe analysis highlights, there was a large carryover of about 51,600 units that were in development in 2024 but not yet finished by year-end, which rolled into the 2025 pipeline rentcafe.com. This indicates many conversion projects face multi-year timelines or delays, and some may never materialize if they can’t overcome financial or approval hurdles. Nevertheless, the overall pipeline is growing - an additional 19,000 new conversion units were proposed in 2024 on top of those carried over rentcafe.com. This represents a strong forward indicator that developers are increasingly attempting these projects despite the challenges.
Where are conversions happening? It’s a nationwide phenomenon, but a few major metropolitan areas stand out as leaders:
New York City: The New York metro area has the largest office-to-residential pipeline in the country, with 8,310 apartment units in conversion as of 2025 rentcafe.com. That is a 59% jump from the previous year, reflecting a flurry of new projects announced or started rentcafe.com. New York alone accounts for over half of all planned adaptive-reuse units in its region rentcafe.com. This is unsurprising given NYC’s enormous office inventory (the city has ~730 million sq. ft. of office space, the most in North America) rentcafe.com and a chronic housing shortage. A remarkable statistic: an estimated 305 million sq. ft. of NYC offices – about 46% of the metro’s total office stock – might be suitable for residential conversion under the right conditions rentcafe.com rentcafe.com. New York has been converting offices to housing for decades (notably in Lower Manhattan after the 1990s), so it had a head start with many older financial district buildings already turned into apartments in the 1990s and 2000 surbanland.uli.org. Now, a new generation of conversions is underway in Midtown and other areas. For example, the former Pfizer headquarters on East 42nd Street is being transformed into residential, yielding 1,600 new apartments (in two buildings), a quarter of which will be affordable rentcafe.com. And the largest conversion project in the U.S. - the 1960s-era 25 Water Street in lower Manhattan - will create 1,320 apartments in a 1-million-square-foot tower once used for offices callan.com. Importantly, that project was made viable by a 35-year tax abatement as noted earlier, underscoring the role of policy in NYC’s success callan.com. Overall, New York’s proactive stance and sheer scale of opportunity make it a bellwether for this trend.
Washington, D.C.: The D.C. metro ranks second, with 6,533 units in the office-to-residential pipeline as of 2025 rentcafe.com. Washington actually led the nation in conversions in earlier surveys, and while its pipeline grew modestly (up 12% year-over-year), it was overtaken by New York’s surge rentcafe.com. D.C.’s downtown has struggled with over 20% office vacancy and the city is aggressively pursuing conversions as part of a downtown revitalization strategy. The local government’s incentives (the 20-year tax abatements, etc.) aim to add thousands of residents downtown. A notable D.C. project is the conversion of the Universal Buildings near Dupont Circle into “The Geneva,” which will deliver 525 apartments (at least 69 affordable) in two former office towers rentcafe.com rentcafe.com. D.C. also stands out for encouraging non-residential conversions via its “Office-to-Anything” program - reflecting a strategy to diversify downtown with hotels, arts, education, and other uses alongside housing urbanland.uli.org urbanland.uli.org.
Los Angeles: L.A. is third in pipeline size with 4,388 future units slated from office conversions, an impressive 80% increase from last year’s pipeline rentcafe.com. Los Angeles has a long-running Adaptive Reuse Ordinance (dating back to 1999) which led to a loft conversion boom in downtown’s historic core in the early 2000s. That ordinance made it relatively easy to convert older office and industrial buildings by-right in Downtown L.A., resulting in thousands of units over two decades. Now, L.A. is looking to expand that success citywide urbanland.uli.org urbanland.uli.org. The current pipeline includes projects like the ARCO Tower redevelopment, which will turn a 33-story office high-rise into 691 apartments in the growing downtown South Park area rentcafe.com. Los Angeles also sees conversions as one answer to its housing shortage exacerbated by recent losses of homes (wildfires are noted as destroying thousands of homes, increasing demand for replacement units) rentcafe.com. With an estimated 83 million sq. ft. of L.A. office space potentially suitable for residential reuse (about 25% of its office inventory) rentcafe.com, the city has huge long-term capacity if it can get the zoning reforms through.
Chicago: The Chicago metro has roughly 3,606 units in the pipeline from office conversions - putting it a bit behind the coastal cities, but still in the top five nationally rentcafe.com. Chicago’s pipeline grew ~28% year-over-year rentcafe.com, thanks in part to the city’s concerted efforts to reinvent the historic LaSalle Street financial district with housing. Chicago has identified over 67 million sq. ft. of its office stock (18% of the metro’s total) as suitable for conversion, which actually exceeds the national average in percentage terms rentcafe.com. The city is actively facilitating several high-profile projects: for example, 30 North LaSalle Street (a vintage office tower in the Loop) will be converted into 432 apartments, 130 of which will be affordable units as required by the city’s RFP for LaSalle Street revitalization rentcafe.com. Also underway is 135 S. LaSalle (the Field Building), a 1930s Art Deco office tower slated to become hundreds of apartments with city TIF assistance chicago.gov. And as mentioned, 111 W. Monroe (old Harris Bank tower) will become a mixed-use complex with a hotel and 345 apartments, backed by $40 million in TIF and historic tax credits propmodo.com. Roughly 30% of the units in these Chicago projects are set aside as affordable, showing how the city is marrying adaptive reuse with equity goals propmodo.com. Chicago’s approach is being watched as a model for leveraging public funds (TIF) to overcome conversion hurdles - if it succeeds in rejuvenating the Loop, other cities may replicate the strategy propmodo.com.
Other Notables: Beyond the big four, Dallas (2,700 units), Atlanta (2,239 units), Minneapolis (1,873 units), and a number of mid-sized cities are pursuing office conversions at meaningful scale rentcafe.com rentcafe.com. Interestingly, some smaller and Sunbelt cities (Charlotte, Jacksonville, Omaha, etc.) have seen triple-digit growth in their conversion pipelines, albeit from smaller bases.
This suggests the trend is not limited to coastal “gateway” cities = it’s spreading to places wherever a combination of office glut and housing need exists. For instance, Charlotte, NC saw its office conversion pipeline more than double (now ~1,787 units, up 107% YoY), and Jacksonville, FL’s pipeline jumped to ~1,418 units (albeit much of that is one big project). Meanwhile, San Francisco – often cited for its empty offices – currently has a relatively modest conversion pipeline (the city proper has only a couple hundred units actively in the works). SF ranks behind many smaller cities in conversions so far, due to the tough economics there. However, San Francisco is making policy moves to change that (as we’ll discuss in the next section), and its potential is huge if costs can be tamed – the city has 51 million sq. ft. of empty office space post-pandemic costar.com, and even a fraction of that converting would create thousands of units.
Overall, the market data paints a picture of a rapidly growing movement that is still in early innings. The pipeline numbers in 2025 are unprecedented, yet they still represent just a small fraction of the empty office space out there. Many announced projects will hinge on financing and government support to actually break ground. But the trend line is clear: office-to-residential conversion is moving from a curiosity to a mainstream strategy in U.S. real estate. Next, we’ll zoom in on how this trend is playing out in a few emblematic cities.
City Spotlights: Conversions in Action in NYC, Chicago, and San Francisco
New York City – Scaling Up Adaptive Reuse: New York offers a glimpse of the possible scale of office conversions. The city has been at it longer than most - after the early 1990s recession, Lower Manhattan successfully converted dozens of old financial district office buildings into apartments (aided by the 421-g tax abatement at the time). That legacy means New York’s officials and developers know the playbook, and now they are extending it citywide. As noted, NYC leads the nation with over 8,000 conversion units in the pipelinerentcafe.com, and more projects keep emerging. The city’s strategy involves clear rules and generous incentives: zoning allows many conversions as-of-right, and the new 467-m tax exemption (enacted by New York State in 2025) is a game-changer, essentially freezing property taxes at pre-conversion levels for decades if affordability criteria are met rentcafe.com.
One marquee project is 25 Water Street in the Financial District, a 1.1 million sq. ft. office tower built in 1969 that is being converted into 1,300+ apartments (with some retail and amenities) callan.com. This single project will create more units than many entire cities have in their pipeline. It was made feasible by a novel deal: a 35-year property tax abatement linked to affordable housing commitments callan.com. In exchange for reserving a percentage of units at below-market rents, the developers get relief on operating costs, illustrating the public-private partnership model. Another notable NYC conversion is the former Pfizer Headquarters on East 42nd St. - actually two office buildings being combined into a residential complex with 1,600 rental units, of which 25% will be affordable rentcafe.com. Midtown East is seeing similar activity, as many 1950s-era office towers in that area are ripe for repurposing due to antiquated layouts. City officials have identified dozens of viable office buildings (totaling tens of millions of sq. ft.) that could be converted in the next wave, especially if economic conditions improve or additional incentives are offered rentcafe.com.
New York’s experience underscores a key point: scale and speed. Once the regulatory pieces were in place, NYC attracted big capital to these conversions. The city’s ability to approve projects by-right (following clear standards rather than discretionary case-by-case approvals) has been cited as a crucial advantage urbanland.uli.org. Developers know that if they meet the criteria (building age, location, floor area limits, etc.), they can proceed without lengthy entitlement battles - a certainty that is often missing elsewhere. While challenges remain (New York’s construction costs are among the highest in the nation, and not every old office can convert easily), the city is proving that with the right framework, office-to-residential can occur at a transformative scale. By 2026, many of these pipeline projects will be under construction, and New Yorkers could start to see noticeable changes: formerly dark office towers lighting up at night with apartment windows, bringing new life to parts of Midtown and Downtown.
Chicago - Reviving the Historic Loop: Chicago’s downtown (the Loop and West Loop) had a glut of aging office buildings even before the pandemic, and remote work only exacerbated the vacancies. Rather than watch the LaSalle Street corridor empty out, Chicago launched an ambitious plan to inject residential uses and convert iconic old offices into mixed-use destinations. The city’s approach has been very proactive: it issued an Invitation for Proposals (IFP) in 2022 for property owners on LaSalle Street to submit conversion plans, dangling incentives like TIF funding and other subsidies chicago.gov. The result is that multiple projects are moving forward simultaneously, aiming to create an “18-hour district” where a 9-to-5 financial canyon once stood.
The Field Building at 135 S. LaSalle, a 45-story Art Deco masterpiece from 1934, is one such project. Vacant and struggling, it is now slated to be converted into approximately 430 apartments (with about one-third affordable) plus amenities rentcafe.com. The city approved $98 million in TIF assistance to support the $240 million redevelopment budget for this building chicago.gov, essentially funding the gap to make the project viable. Similarly, 111 W. Monroe (the old Harris Bank building, two interconnected high-rises from the 1920s and 1960s) is being transformed into a mixed-use complex featuring a 226-room hotel and 345 apartments, plus restaurants and a rooftop club propmodo.com. This creative combination of uses is turning the property into a 24/7 destination. It’s supported by $40 million in TIF, historic tax credits (since part of the property is landmarked), and other financing tools propmodo.com. The first residents are expected by 2027 propmodo.com.
Chicago’s case is instructive for the financial engineering it employs. By using TIF – essentially borrowing against future property taxes that will be generated once the buildings are occupied and more valuable - Chicago is front-loading the investment in these conversions propmodo.com. Across the initial batch of LaSalle projects, ~$321 million in TIF will help catalyze ~$900 million in private investmen tpropmodo.com. In return, the city gets significant affordable housing (approximately 30% of units across these projects are set to be below-market) and avoids having vacant office towers drag down downtown. There are still concerns (Chicago’s office market remains weak, and the retrofit costs are high, especially for preserving landmarked facades propmodo.com). But if these first conversions prove successful - leasing up quickly and boosting the local economy – it could validate a model for other cities with historic downtowns. Essentially, Chicago is saying: if the private market won’t solve it, we’ll prime the pump with public dollars to get these empty offices reactivated. As 2026 approaches, Chicago will likely see several of these projects under construction, giving tangible shape to LaSalle Street’s reinvention.
San Francisco – Confronting the Conversion Conundrum: No city’s plight in the remote-work era has been as scrutinized as San Francisco’s. With office vacancy soaring above 30% in the financial district and tech companies shedding space, downtown SF is a focal point of the office-to-housing discussion. Yet, despite the need, San Francisco has lagged in conversion projects compared to its East Coast peers sfstandard.com spur.org. The reasons are largely economic: SF has some of the highest construction costs in the world, and until recently, office values hadn’t fallen enough to make conversion deals attractive. Moreover, San Francisco’s approvals process can be lengthy and fraught with community opposition.
That said, there are early signs of progress. In October 2024, after years of talk, San Francisco saw its first post-pandemic office conversion break ground: the historic Humboldt Bank Building at 785 Market Street sfstandard.com. This 19-story, century-old building will be converted into 120 apartments marketed to middle-income renters sfstandard.com. It’s a relatively small project by big-city standards, but symbolically important. The developer, Forge Development, spent four years assembling the financing and approvals – highlighting how hard it can be. They ultimately had to get very creative: unable to secure conventional bank loans, the project is being funded with help from federal agencies (HUD, Department of Energy, EPA) and climate-focused investors due to its “green” retrofit approach sfstandard.com sfstandard.com. Essentially, the project piggybacked on federal clean energy incentives (by committing to energy-efficient design, reuse of the building’s old steam system, solar panels, etc.) to unlock grants and loans that traditional real estate lenders were hesitant to provide sfstandard.com sfstandard.com. This innovative financing underscores that conversions in SF may require atypical funding sources – a blend of housing money, sustainability grants, and public-sector loans – to fill the viability gap.
On the policy front, San Francisco’s leaders are pushing to make conversions easier. In 2023–24, the city updated its building and planning codes to relax certain requirements for office-to-residential projects and created a special “downtown financing district” to support themrentcafe.com. In March 2024, voters approved Proposition C, which tweaked zoning to allow more flexibility in converting older downtown offices (for instance, removing some density limits and waiving costly fees) spur.org. Mayor London Breed’s administration has even proposed eliminating certain development fees for downtown conversions to improve project economics sf.gov. California’s state government is also considering broader measures – Governor Newsom’s office has floated the idea of state tax credits or revolving loan funds to spur office conversions in hard-hit cities like SF brookings.edu econsultsolutions.com.
The upshot is that San Francisco, while behind now, could see a wave of conversions later in the decade if these policy changes align with market reality (further price drops or cost reductions). Several high-profile SF properties are being eyed for conversion: the vacant Westfield San Francisco Centre mall (a massive, multi-story complex) has been mentioned as a candidate for a mixed retail/residential overhaul, and some owners of half-empty downtown office towers are reportedly studying residential options (e.g. the owner of 550 California Street, a former bank headquarters, has publicly pondered converting it) thefrontsteps.com. For 2025–2026, most SF projects will likely be small-to-mid size and heavily subsidized or pilot programs. The Humboldt Building conversion will be a closely watched proof of concept. If it succeeds in leasing those 120 units and demonstrating that tenants will move into downtown SF if housing is provided, it could build momentum. San Francisco’s experience will highlight both the potential and the difficulties of conversions in a high-cost, high-regulation environment.
Other City Case Notes: Many other cities deserve mention – Washington, D.C. for its comprehensive downtown conversion initiatives; Philadelphia for its long history of turning old office stock into residences (40+ buildings converted in Center City since the 1990s) brookings.edu; and smaller cities like Calgary (in Canada) which has pioneered generous subsidy programs ($75 per sq. ft. grants) to remove 6 million sq. ft. of vacant offices from its downtown by 2031 urbanland.uli.org urbanland.uli.org. Each city’s approach differs, but the common thread is trying to marry economic necessity (empty buildings) with opportunity (need for housing and downtown revival).
Real Estate Investment Implications and Future Outlook
The rapid rise of office-to-residential conversions carries significant implications for investors, developers, and the broader real estate market. This is a trend born of distress, but it is evolving into a legitimate investment strategy that could reshape portfolios and cities alike.
New Opportunity for Value-Add Investors: For opportunistic real estate investors, conversion projects are emerging as a new avenue to deploy capital – essentially a hybrid of a redevelopment play and a multifamily development play. With office valuations in many cities reset to decade lows, savvy investors (PE funds, REITs, private developers) can acquire well-located office buildings at steep discounts. They then aim to create value by converting to residential, where cap rates are much lower (and values higher) than those of troubled offices. In effect, they are arbitraging the sector differential. However, these aren’t quick flips; they require development expertise and patience. An increasing number of institutional investors are taking note of this strategy callan.com. In 2023, some were skeptical, but by 2025 we see large firms actively forming adaptive reuse funds or adding conversion projects to their pipelines. For example, property giant Brookfield, after defaulting on some of its L.A. office towers, has hinted at considering conversions for certain assets in its portfolio rather than selling at a loss. And in early 2024, RXR Realty in New York partnered with a pension fund to acquire a vacant downtown NYC office with plans to turn it into apartments – a sign that big capital is testing the waters. The presence of institutional money could accelerate the trend, but investors will be choosy, focusing on prime locations and buildings that meet the key criteria discussed earlier (suitable structure, supportive local policies, etc.).
Impact on Commercial Real Estate (CRE) Markets: If conversions continue to ramp up, they could begin to alleviate some pressures in both the office and multifamily sectors. For the office market, conversions act as a form of “natural absorption” of excess supply. By permanently removing some offices from the market (literally demolishing or gutting them to make housing), they help reduce office vacancy rates over time. Estimates from JPMorgan have suggested that even converting a few percent of U.S. office stock would meaningfully tighten office vacancies in certain metros by 2027. In cities like NYC and DC that are aggressively pursuing conversions, we may have effectively hit peak office inventory – going forward, total office square footage will shrink as obsolete buildings are subtracted. This could stabilize the office sector faster than if buildings just sat empty. For the multifamily market, injections of new supply via conversion are largely welcome, given most cities’ housing deficits. While 40,000–70,000 units over a couple of years is still small on a national scale, in specific downtown submarkets these projects could be significant. For instance, downtown Washington D.C. expects 1,000+ new residential units from conversions by 2025, which will boost the housing stock in that area considerably urbanland.uli.org urbanland.uli.org. More housing can help temper rent growth and make city centers more affordable (especially since many conversion programs mandate an affordable component).
Mixed-Use and ESG Priorities: A notable evolution in conversion projects is the shift toward mixed-use designs and ESG (Environmental, Social, Governance) integration. Developers are realizing that simply plopping apartments into a former office and doing nothing else may not guarantee success – especially if the surrounding area is still devoid of life after work hours. So, many conversion plans now include ground-floor retail, restaurants, or cultural venues, and even co-working or hotel components, to create a more 24/7 destination callan.com propmodo.com. The Harris Building in Chicago (111 W Monroe) is a prime example: by adding a hotel, event space, and a rooftop club along with residences, the project aims to ensure there is steady foot traffic and amenities for residents and visitors alike propmodo.com. This mixed-use approach can enhance the financial performance (multiple revenue streams) and community acceptance of the project.
On the ESG front, conversions are inherently a form of recycling – they reuse existing structures, which can significantly reduce carbon emissions compared to demolishing and building new. Many projects tout this sustainability angle. Some, like the SF Humboldt Bank project, are going further by incorporating energy-efficient systems and aiming for net-zero operations sfstandard.com. Governments are encouraging this: the federal grants in SF came because the project promised to reduce energy use and retrofit the building’s systems to modern green standards sfstandard.com sfstandard.com. We can expect more alignment with ESG goals, such as developers seeking LEED certification for conversion projects or utilizing green financing (like C-PACE loans for energy upgrades). There is also a social dimension – many office conversions are contributing to affordable housing stock, as discussed, which investors with ESG mandates will view favorably.
Risks and Uncertainties: Despite optimism, conversions are not a panacea or a one-size-fits-all solution. From an investment standpoint, they carry construction risk, entitlement risk, and market risk. Cost overruns are common, and if inflation in construction materials continues, budgets can blow out. The economic viability often hinges on those public incentives; a change in administration or budget priorities could curtail programs like tax abatements, suddenly making projects less attractive. There’s also the question of market depth – will there be sufficient tenant demand for all these new downtown apartments, especially if they cluster in the same areas? Early signs are positive (many converted buildings lease up quickly due to lack of competition and the appeal of new product), but if remote work persists, some downtowns might remain less desirable places to live unless safety and street vibrancy issues are addressed in parallel. Cities need to ensure that conversions are part of a holistic downtown plan (including improving streetscapes, public safety, schools, etc.) so that new residents actually want to move in urbanland.uli.org.
For owners and lenders of office buildings, the rise of conversions adds a potential exit route – rather than ride an office asset into the ground or default on a loan, owners can collaborate with developers or sell to those who will convert. We may see more creative deal-making on that front, such as lenders financing conversion costs as part of loan workouts (to avoid foreclosing and having an empty building). Real estate service firms are already carving out specialty teams to advise on conversions, indicating a maturing of this niche.
Future Forecast: Looking ahead to 2026 and beyond, the consensus is that office-to-residential conversions will remain a significant and growing trend in CRE. The next 18–24 months will be critical in proving out the economics at scale. If interest rates stabilize or fall, financing these projects will get easier, likely unleashing a bigger wave of activity. Policy support is likely to continue (and possibly expand) given the bipartisan appeal of addressing downtown vacancies and housing shortages simultaneously. We might also see federal action: there have been discussions in Congress about a “Revitalizing Downtowns” federal tax credit to support office conversions (similar in spirit to the historic rehabilitation tax credit) novoco.com. Although one specific measure was cut in 2025 budget negotiations planetizen.com, the pressure is mounting for federal incentives as big-city mayors lobby for help. Should such a credit pass, it could supercharge conversion activity by making more projects pencil out nationwide.
By 2026, we can expect a few headline-grabbing conversions to be completed, demonstrating what’s possible. These will likely include projects like 25 Water Street in New York (set to open phases starting 2025–26) callan.com, several of the LaSalle Street buildings in Chicago by 2026–27, and potentially some sizable ones in D.C. and L.A. The success or failure of these early exemplars will influence investor sentiment. If they lease up and yield good returns, capital will pour in, treating conversions as a bona fide asset strategy. If they struggle, it may signal that conversions are more of a case-by-case solution than a broad cure-all.
Bottom line: Office-to-residential conversions have moved from the periphery to the mainstream of commercial real estate discourse. They represent a pragmatic adaptation to new realities – the way we live and work has changed, and our buildings must evolve accordingly. While not every empty office tower will sprout apartments, a growing share will, and in doing so will help reshape downtown skylines from places that used to be filled with office workers to neighborhoods that house families, students, and retirees. It’s a challenging process, requiring “all hands on deck” from architects, engineers, financiers, and policymakers, but it also offers a hopeful path forward for beleaguered urban centers. By 2026, the U.S. will have a clearer picture of just how far this trend can go. If current momentum holds, we’ll see formerly dead office buildings pulsing with new life – lights on in the windows at night, shops and cafés open on once-empty streets, and city centers that feel renewed rather than in decline. That outcome would indeed mark a major transformation, turning a crisis (empty offices) into an opportunity (thriving mixed-use communities) – a powerful story of resilience and reinvention in the built environment.
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Sources:
RealtyAds – The Rise of Office-to-Residential Conversions: What It Means for CRErealtyads.comrealtyads.comrealtyads.comrealtyads.com
Callan (Aaron Quach & Christine Mays) – 2025 Office Conversions: Falling Office Values Shift the Economicscallan.comcallan.comcallan.comcallan.comcallan.com
Urban Land Institute – Office to Anything: More Cities Offer Conversion Incentivesurbanland.uli.orgurbanland.uli.orgurbanland.uli.orgurbanland.uli.orgurbanland.uli.orgurbanland.uli.orgurbanland.uli.org
Urban Land Institute – Downtown Office-to-Residential Conversions (Case Studies)urbanland.uli.orgurbanland.uli.orgurbanland.uli.orgurbanland.uli.orgurbanland.uli.org
RentCafe (Yardi Matrix) – Record-Breaking 71K Units from Office Conversions in 2025rentcafe.comrentcafe.comrentcafe.comrentcafe.comrentcafe.com
Propmodo – Chicago’s Tax Incentives for Office Conversionspropmodo.compropmodo.com
SF Standard – How SF’s First Post-Pandemic Office Conversion Came Togethersfstandard.comsfstandard.comsfstandard.comsfstandard.com
Brookings Institution – Office-to-Residential Conversion Seriesbrookings.edubrookings.edu
NYC Comptroller Report – Office-to-Residential Conversions in NYC (2025)rentcafe.comrentcafe.com
Various news sources on local programs (DC, LA, Minneapolis, etc.)rentcafe.comrentcafe.comrentcafe.com