Dive Brief:
- The number of adaptive reuse projects in the U.S. multifamily construction pipeline has grown in the last year, up from 77,000 units in 2022 to a record of 122,000 in 2023, according to RentCafe’s latest Adaptive Reuse Report.
- Office-to-multifamily conversions make up the majority of units under construction at 37% of future projects, or 45,000 units, followed by hotel-to-multifamily conversions at 23%. Los Angeles has the largest development pipeline in the country at 4,566 units, followed by New York City and Chicago.
- However, adaptive reuse deliveries have not followed the same trend. A total of 10,092 converted apartments hit the market in 2022, down from 11,422 in 2021 and 13,530 in 2020, according to RentCafe.
Dive Insight:
Interest in adaptive reuse projects, particularly office-to-multifamily conversions, rose following the start of the COVID-19 pandemic, both as a housing solution and a means to bring activity back to downtown areas, according to RentCafe.
Despite making up the majority of conversions in progress, office-to-multifamily deliveries are at their lowest point in a decade, with only 3,390 new units delivered in 2022. RentCafe notes that the office market is in limbo as remote work remains popular. At the same time, hotel conversion deliveries have risen to their highest level in five years, reflecting the drop in travel around the start of the pandemic.
Top 10 cities by most converted apartment completions in 2022
| City/State | Converted apartment deliveries in 2022 | Share of total U.S. conversions | |
|---|---|---|---|
| 1 | Los Angeles | 1,292 | 13% |
| 2 | Kissimmee, Florida | 648 | 6% |
| 3 | Alexandria, Virginia | 435 | 4% |
| 4 | Baltimore | 395 | 4% |
| 5 | St. Louis | 354 | 4% |
| 6 | Cleveland | 354 | 4% |
| 7 | Kansas City, Missouri | 329 | 3% |
| 8 | Minneapolis | 312 | 3% |
| 9 | Tucson, Arizona | 292 | 3% |
| 10 | New Albany, Indiana | 240 | 2% |
SOURCE: RentCafe
The seemingly slow pace of adaptive reuse deliveries does not necessarily reflect the most recent market conditions. A conversion project typically takes nine months to a year to design, about a year to approve in most cities and then two more years to construct, according to Steven Paynter, principal at San Francisco-based architecture and design firm Gensler, as quoted by RentCafe.
This means that the completions hitting the market in 2023 better reflect trends from a few years earlier, in the early days of the pandemic or just before.
“The projects that were done in 2020 would have been designed two to three years earlier because of the design and approval timeline,” Paynter said. “I believe there will be a huge boom [in adaptive reuse] in the next year and the year after, in terms of project starts, and 2024-2027 in terms of project completions.”
Conversion city
Los Angeles not only has the strongest conversion pipeline in the country, but also the highest number of new deliveries at 1,292 in 2022. Over half of these units were office-to-residential conversions — the highest in the country last year at 692.
The city has long offered incentives for conversion development, including the Downtown Adaptive Reuse Ordinance, initially implemented in 1999. The City Council recently approved an update to this rule that expanded its scope, providing conversion incentives for a wider range of commercial buildings.
Incentives are a major driver of conversions at the state and municipal level, according to RentCafe, with LA as only one example. Tax credits for historic building preservation in Missouri and Ohio have funded conversions in St. Louis, Cleveland, Cincinnati and Kansas City, Missouri, according to Doug Ressler, senior analyst and manager of business intelligence at Yardi Matrix.
“Creative approaches are increasingly being sought to deliver net new affordable homes — leveraging of public assets, public financing tools, new legislative authorities, funding and, importantly, more solutions with the private sector,” Ressler said in the report. “These solutions include corporate funding and deeper alignment with traditional multifamily housing developers and investors.”