Beata Zawrzel/Getty Images
- The rise of remote work, high interest rates, and climate regulations all pose problems for office buildings.
- But the commercial real estate crisis could be a major opportunity to expand the US housing supply.
- A new study found that more than 2,000 US office buildings could be converted into up to 400,000 apartments.
Lonely office buildings languishing away during the remote and hybrid work boom could have a new life — and it might mean your next apartment could be both good for the environment and your wallet.
A new working paper for the National Bureau of Economic Research by Arpit Gupta, Candy Martinez, and Stijn Van Nieuwerburgh finds that more than 2,000 office buildings in American downtowns could be converted into eco-friendly apartment buildings. Those conversions could yield up to 400,000 new apartment units, and, at minimum, over 170,000 new units — a major boon in cities simultaneously inflicted with housing crises and empty office towers.
The authors found that about 11% of office buildings in the commercial centers of the 105 most populous US cities would be suitable for conversion to residential homes. Those "zombie" properties — unrentable office buildings that are sitting empty, just accruing costs — could be made into 200-unit apartment buildings using conversion processes that would take less time than a new build.
These residential conversions, the authors argue, would address the three major issues facing office buildings today: vacancies as a result of remote work, higher interest rates, and climate regulations. The pandemic accelerated the rise of remote work and many businesses aren't renewing their office leases, leaving commercial buildings with high vacancy rates. Elevated interest rates mean it's harder for office real estate owners to pay back their mortgages. And new environmental regulations require that buildings meet certain energy efficiency standards that can require costly renovations.
The US is in the middle of a severe housing supply crisis. To keep up with demand, the country needs to build an estimated 3.8 million to 6.5 million new homes.
The study found that the Greater New York City region has the most buildings that fit their criteria for residential conversion. The San Francisco and Los Angeles metro areas were the runners-up. All three metropolitan areas have among the highest housing costs in the country.
Turning office buildings into apartments isn't a new concept, and it's one that New York City has embraced in theory. However, as Insider's Jordan Hart previously reported, it can be both difficult and expensive to convert buildings amidst tight zoning regulations, local pushback, and high conversion costs.
But the researchers specifically focused on little-used downtown buildings that were built before 1990 without sprawling square footage across the floors. Older buildings tend to have smaller floor plans that allow more light into the interior without requiring a light shaft in the center of the building.
Buildings contribute almost 30% of the US's total greenhouse gas emissions. The study found that 72% of large office buildings in New York City emit more climate-warming gasses than permitted under the country's 2030 emissions goals.
During the process of converting office spaces to homes, developers could retrofit the buildings to meet new energy efficiency standards. Eco-friendly conversions of those buildings could be bolstered by the Inflation Reduction Act's billions of dollars in tax credits meant to incentivize green technology and building, with the researchers finding that office conversions could potentially qualify for over $10 billion in grants. It's also greener to renovate existing buildings than constructing new ones.
Of course, office buildings require some retrofitting to be turned from sprawling workplaces to livable apartments. For instance, New York City — among other areas — mandate that bedrooms have to have windows. While that's likely more pleasant for renters, it may prove to be burdensome in office conversions; it would require a ring of bedrooms around the office building's walls, leaving what the researchers say is "substantial dead space in the center." However, for renters who like their windows — and are legally required to have them — the researchers posit that those wide empty spaces in the center could be used for common space.
It's not the only solution needed to address an ever-worsening housing crisis. But, as the researchers conclude, "While challenges abound, the potential to reimagine urban spaces for an economically and ecologically more sustainable future is immense."
Would you live in an office building, or do you live somewhere that once had a different use? Contact these reporters at jkaplan@insider.com and erelman@insider.com.