Maybe co-living could unlock office-to-residential conversions
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See all those empty office buildings in downtown SJ and SF? Ever think: hmmm, why can't we turn them into much-needed housing? The answer is—we can, but it will require substantial zoning and code changes. Pew Charitable explores.
The United States has a shortage of 4 million to 7 million homes and, at the same time, an all-time-high office vacancy rate of 20%, meaning that more than a billion square feet of office space is unused. But despite the urgent need for housing—and many local policymakers’ desire to convert underused office space to apartments to help revitalize downtowns that lost residents and businesses during the pandemic—construction costs remain too high to make most such conversions profitable, even with today’s high market rents in many U.S. cities and towns.
But new research from The Pew Charitable Trusts and Gensler, a global architecture, design, and planning firm, has identified a more economically viable approach to office-to-residential conversions using a design that reduces construction costs and enables low rents that are affordable for people earning well below an area’s median income. Rather than conventional apartments, the design calls for converting buildings to co-living dorm-style apartments. Each floor features private, locked “microunits” along the perimeter, with shared kitchens, bathrooms, laundry, and living rooms in the center.
Adding large amounts of this low-cost, downtown housing would provide a much-needed option for students, service-industry workers, young professionals, veterans, new arrivals in a city, and retirees. It would also reduce homelessness. And because of these units’ small size, the current low prices for office buildings, and the efficient layout, this housing could be created near jobs and transit at a fraction of the cost of traditional houses or apartments.
The analysis shows major benefits of the co-living design. Concentrating the plumbing and kitchens in the center of each floor (where they usually already are in offices), rather than in each unit, and other savings from this building style trims the construction costs by roughly 25% to 35% versus conventional office-to-apartment conversions. Because the microapartments are narrow and deep, every resident would have a large window, but each floor would accommodate roughly three times as many units as a typical apartment building.
The additional units mean slightly more total revenue than with typical apartments or older office buildings. But the anticipated rents would be lower than studio apartments and typically affordable for people earning less than half the area median income. And converting vacant buildings in downtown areas would provide residents access to jobs and public transportation without cars, relieve strain on their budgets, and expand their economic opportunities, while also preserving the look and feel of residential neighborhoods because it uses existing buildings away from single-family blocks.
Further, converted offices could be configured so that residents have keycard access only to their own floor, creating small communities. This also could enable leasing of an individual floor for dedicated purposes, such as to a university for supplemental dorm space, to a hospital for temporary staff housing, or to a city for permanent supportive housing for residents who were previously homeless. Converted buildings would also need 24-hour security even though typical apartment buildings do not have it. Operating costs would be higher than a conventional apartment building, but landlords would be able to defray costs for security and cleaning of common areas across the large number of tenants.
Pew and Gensler also found the conversions could be feasible with some combination of the following: an investor comfortable with a modest rate of return, a somewhat below-market rate loan, a subsidy from a city or philanthropy, or a building that can receive a historic tax credit. However, the anticipated rate of return would not be high enough to attract capital from private equity or similar investors if none of these conditions are met.
Of course, converting office buildings into co-living housing has challenges. Although less costly and faster than other office-to-residential conversions, developing these homes still is a major undertaking, requiring the reconfiguring of all core building systems and installation of high-quality soundproofing between rooms.
Nevertheless, the potential payoff—revitalized downtowns, reduced homelessness, improved housing affordability, and more economic opportunity—could be substantial. And although office-to-residential conversions have so far been limited, this new research identifies a cost-effective path forward that could enable cities that see even a few converted high- or midrise buildings to realize benefits as soon as the buildings are fully leased. Ironically, low-cost housing, rather than high-end conversions, may be the most financially feasible option for the nation’s underused office space.
Read the whole thing here.
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