Office-to-Residential Conversions: A Global Real Estate Trend

The global real estate market is witnessing a significant shift. Older office buildings are being repurposed into apartments and premises for institutional rent. This trend, prevalent in many countries including Poland, is reshaping the urban landscape. This article provides an in-depth analysis of this phenomenon, with a focus on the Polish market, while also offering a broader global perspective.

The Global Trend: A Historical Overview

The conversion of office spaces into residential units is not a new concept. It has been a part of urban development strategies for decades. However, the scale at which it’s happening now is unprecedented. From 2021 to 2024, the number of apartments scheduled for conversion from old office spaces globally increased from 12,100 to 55,300. Office conversions now represent 38% of the 147,000 apartments in future adaptive reuse projects.

The Polish Market: Adapting to Change

In Poland, this trend is gaining momentum. Developers are strategically repurposing office spaces into residential units. For instance, in Warsaw’s S?u?ewiec, the largest office center, two older office buildings are being replaced with an estate comprising about 1.2 thousand apartments for sale and a building with apartments for rent, retail, and service units.

Specifically, Archicom and Echo Investment have begun the construction of the Modern Mokotów residential development in Warsaw’s S?u?ewiec district. The existing office development will be replaced by a ‘destination’ type residential quarter. Three buildings will be constructed in the first phase of Modern Mokotów. The first will contain 356 apartments and two courtyards, while the second will provide 144 units and one courtyard.

In addition to this, the Diuna office complex in Warsaw’s S?u?ewiec district has undergone a comprehensive modernization, transforming its courtyard from a concrete car park into a green park with 50 trees and 96 species of shrubs. This transformation is not only enhancing the aesthetic appeal of the area but also contributing to the sustainability of the city.

Beyond Office Buildings: A Broader Perspective

While office buildings are a significant part of this trend, they are not the only structures being converted. Other types of properties have also been converted into apartments, including factories, warehouses, former military bases, government buildings and in one rare instance, an old minor league baseball stadium.

In the 2000s, it was mostly factories that became apartments. Then, in the 2010s, offices were the most common structures to be turned into rentals. This shows that the type of buildings being converted can change over time, depending on various factors such as market demand and the availability of suitable structures. As we move into the 2020s, the trend has shifted towards the conversion of office buildings, driven by changes in work culture and the increasing demand for urban living spaces.

The Driving Factors: A Changing Work Culture

The rise of remote work, high vacancy rates for commercial spaces, and a surge in demand for residential spaces are driving this shift. The COVID-19 pandemic has accelerated the adoption of remote work, leading to an increase in vacant office spaces. At the same time, there’s been a surge in demand for residential spaces, particularly in urban areas.

Economic Implications of Office-to-Residential Conversions

The economic implications of this trend are profound. The conversion of office spaces into residential units can lead to an increase in property values, especially in urban areas where housing demand is high. This can result in a significant return on investment for property owners and developers. Additionally, the conversion process can stimulate local economies by creating jobs in construction, design, and property management.

Social Impact of Office-to-Residential Conversions

The social impact of this trend is also noteworthy. By converting unused office spaces into residential units, cities can address housing shortages and provide more affordable housing options. This can lead to more diverse and vibrant communities, as people of different income levels have the opportunity to live in centrally located areas. Furthermore, the conversion of office buildings into residential units can lead to the revitalization of neighborhoods, as new residents bring life and activity to areas that were previously dominated by businesses.

Environmental Benefits of Office-to-Residential Conversions

From an environmental perspective, the conversion of office buildings into residential units can contribute to sustainability. Instead of demolishing old buildings and constructing new ones, which can result in significant carbon emissions, developers can repurpose existing structures. This not only reduces waste but also conserves resources that would otherwise be used in new construction. Moreover, many of these conversions incorporate green building practices, such as energy-efficient appliances and systems, further contributing to sustainability.

Challenges and Difficulties in Conversion

While the trend of office-to-residential conversions is gaining momentum, it’s not without its challenges. The building regulation framework and the morphology of office buildings are the most important obstacles to the widespread adaptive reuse of this typology. In addition, newer office buildings have larger floor plates, leaving a significant part of the building with little natural light and thus unsuitable for conversion.

Moreover, the fundamentally different requirements of office spaces and residential apartments pose a serious challenge. Offices tend to have greater distance from the core of the building to the window than residential towers, meaning they are deeper. Residential buildings, on the other hand, prefer to have lots of surface area, so bedrooms and living rooms have windows.

Case Studies of Successful Office-to-Residential Conversions

The trend of office-to-residential conversions is not just a theory, but a practical reality that has been successfully implemented in various parts of the world. These case studies highlight the creative ways in which developers have overcome challenges and maximized the potential of office buildings. They also demonstrate the economic, social, and environmental benefits that these projects have brought to their respective communities.

Octave 1320, Silver Spring, Maryland

This project repurposed an office building built in 1964 into an 8-story apartment condominium with efficiency units intended to attract first-time buyers looking for affordable and walkable properties. The building is an 8-minute walk from the Silver Spring transit stop and the Silver Spring Commuter Rail. In 2017, Octave 1320 earned the Excellence in Adaptive Reuse award from the prestigious Urban Land Institute Washington.

Legacy West End, Washington, DC

Legacy West End is a 9-story 198-unit luxury apartment building that was constructed from a concrete office building built in 1989 and that had functioned as a Cadillac dealership from 1935 to the late 1970s.

Hines’ South Temple Tower, Salt Lake City, UT

A 217,000-square-foot office property was transformed into a 221-unit multi-family building.

Greater Paris Region, France

In the Greater Paris Region, nearly 600,000 sq m of offices have been converted since 2001, resulting in the creation of 400 to 500 homes each year. This trend has been particularly noticeable since the Covid-19 pandemic, with the region’s office market recording its worst result in over 20 years in 2020.

These conversions are not only addressing the housing shortage but also contributing to sustainability. Reusing existing buildings results in a lower carbon footprint by using existing infrastructure, directly impacting the local environment and reducing the need for new construction. Moreover, many of these conversions incorporate green building practices, such as energy-efficient appliances and systems, further contributing to sustainability.

The Deloitte Center for Financial Services predicts that office-to-residential conversions could become profitable within the next five years. They estimate that around 14,700 affordable units in central business district (CBD) areas across the USA can be added by 2030, assuming approximately 20% of converted square footage can be earmarked for affordable housing.

Future Predictions: Towards Sustainable Urban Living

As we move further into 2024 and beyond, we can expect to see more of these conversions. This trend is likely to continue as cities around the world adapt to changing work and living dynamics. It’s a testament to the resilience and adaptability of the real estate industry and a step towards more sustainable urban living.

Conclusion: Embracing the New Normal

The transformation of older office buildings into apartments and premises for institutional rent is more than just a real estate trend. It’s a reflection of how our cities are evolving to meet the needs of a new generation. As we navigate through 2024, we can expect to see more of these conversions, not just in Poland, but globally, shaping our urban environments for years to come. This trend is a testament to the adaptability and resilience of the real estate industry, and it’s a step towards more sustainable urban living. As we embrace this new normal, we can look forward to a future where our cities are more vibrant, diverse, and sustainable.

In this evolving landscape, collaboration and partnership become even more crucial. As a real estate broker, I am committed to navigating these changes alongside my clients and partners. I believe that together, we can turn these challenges into opportunities and contribute to the creation of sustainable and vibrant urban communities. If you’re interested in exploring these opportunities or if you have any questions about the current real estate market trends, please feel free to reach out.