Office Conversions Surge in U.S.: Doubling the Pace, Reveals CBRE

Discover how office conversions in the United States are on track to double, as revealed by global property consultant CBRE. With increasing support and incentives, expect major growth in 2023.

According to global property consultant CBRE, the United States is witnessing a significant surge in office conversions this year. With increased incentives and support from state and local governments, these conversions are projected to more than double their recent annual average. CBRE's analysis of major U.S. cities since 2016 reveals that nearly 100 office conversion projects are expected to be completed in 2023, a substantial increase compared to the average of 41 completed between 2016 and 2022.

Office Conversions Surge in U.S.: Doubling the Pace, Reveals CBRE | ogusyis.com

Currently, across the 40 markets tracked by CBRE, there are around 60 million square feet of office conversions planned or in progress. This amounts to 1.4% of the total U.S. office inventory, a slight increase from 1.2% recorded in the fourth quarter of last year. Notably, almost half of these office conversions, 48% to be precise, are aimed at creating multifamily residential complexes. Furthermore, office-to-mixed-use conversions are also gaining traction, accounting for 18% of the conversion pipeline, up from 7% in Q4 of 2022. However, the share of office-to-life sciences lab conversions has seen a decline, dropping from 28% in the fourth quarter of last year to the current 19%.

In recent times, cities such as New York and Chicago have introduced zoning code changes and established public-private partnerships to facilitate and encourage office conversions. These initiatives have been primarily implemented to make conversions financially feasible, with a special focus on creating affordable and zero-emissions housing options. It is worth mentioning that markets experiencing higher-than-average conversion percentages typically have a larger number of older office buildings with higher vacancy rates. For instance, Cleveland leads the way with the highest percentage of office stock targeted for conversion, accounting for 11% of its total inventory. On the other hand, Boston has the largest conversion footprint, with 6.1 million square feet (3% of its office inventory) in planned or underway conversions.

Looking forward, CBRE is closely monitoring 60 conversion projects that are set to be completed in 2024. Out of these, 42 are currently underway, and an additional 18 are in the planning stages.

In conclusion, U.S. office conversions are gaining momentum, driven by increased incentives and support from state and local governments. With nearly 100 projects projected for completion this year, the number of conversions is more than double the recent average. Multifamily residential complexes are the primary focus, followed by mixed-use conversions, while the share of office-to-life sciences lab conversions has decreased. Initiatives undertaken by cities like New York and Chicago are playing a pivotal role in making office conversions financially viable, with an emphasis on affordable and zero-emissions housing.