It is hard to overstate the current wave of office building conversions. With post-COVID office attendance plateauing well below prior levels and housing shortages in most major cities, the conversion of office buildings is the most impactful trend in commercial real estate. These conversions are not easy. According to a study by Brookings Institute, “Optimizing office-to-residential policy and practice is a complex technical exercise that requires understanding a city’s fiscal structure, the financial feasibility of adaptive reuse, the architectural features of a city’s building stock, real-time information about the office and residential markets, and the regulatory environments governing zoning and permitting.”
Office to Multi-Family Conversions Abound
Manhattan, the undisputed king of office space with over 420 million square feet in its central business district, is also the epicenter of office-to-apartment conversions. Pfizer’s former headquarters is being converted into 1600 apartments; 5 Times Square, a 38-story office building, is being converted to 1250 apartments, with a quarter of them designated as “affordable”; and 25 Water Street, which housed JP Morgan Chase, the New York Daily News, and the National Enquirer, is now being converted into 1320 apartments. However, this trend is not limited to New York. In Atlanta, more office space will be converted to other uses than will be added in 2025. This includes conversion of the iconic pink granite 51-story Georgia Pacific downtown office tower into apartments, retail, and entertainment space. Similar conversions are happening in Chicago, Washington, D.C., Dallas, and most major US cities.
While office-to-apartment conversions used to be considered too expensive and difficult to be worth it, the calculus has clearly changed with the housing shortages and office vacancies. While hurdles remain, zoning and tax incentives are making it easier.
Utilities and Other Construction Obstacles
The first major hurdle is the significant construction work required to remodel interior spaces built out for offices into livable space for multiple tenants. For example, a typical office floor may only have two bathrooms — one for men and one for women — whereas a residential floor will need at least one bathroom for every unit. Similar issues arise with sub-paneling each unit for electrical, as well reconfiguring HVAC, lighting, and security and safety (fire alarms/sprinklers) systems.
Residents may file construction defect, breach of contract, and negligence claims against owners when there are issues with the remodel work and in-unit systems do not work correctly. This is all the more likely due to the unusual nature of these projects, which is new to most construction professionals. Typically, these claims are not covered by insurance unless injuries are involved.
Additionally, owners and developers may file claims against general contractors for delayed or inadequate work. Further complications stem from supply chain issues affecting the availability of key materials and preventing work from progressing on schedule. Now that those issues are the norm, it is important to consider allocating this risk at the contracting stage.
Zoning Considerations and New Incentives to Redevelop Office Buildings
More localized problems include compliance with zoning and building codes. Existing zoning for office use traditionally has not allowed for high density residential uses such as apartments or condominiums. Therefore, one of the first steps in a conversion is obtaining approval from the local zoning board or commission. An important consideration during this process is addressing community concerns. Successful developers of any conversion from one commercial real estate use to another, whether it be office to apartments or a shopping mall to a variety of mixed uses, involve community groups early in the process to avoid or minimize opposition.
Some jurisdictions are changing zoning laws to make conversions easier. For example, the New York City Council approved major zoning changes in the City of Yes for Housing Opportunity (“COY HO”) in December 2024. COY HO incentivizes the development of housing generally, particularly affordable housing, and allows office buildings constructed prior to December 31, 1990, to be converted to residences. It also encourages higher affordable housing density by reducing parking requirements, permitting accessory dwelling units, and increasing the maximum permitted residential floor area ratio for affordable housing units. COY HO also modifies building envelopes to accommodate the additional floor area, as well asremoves the requirement to utilize 30-50% of the rooftop for recreational use for residents and provides that conversions need to comply only with the standard recreational use regulations.
Several major cities have passed laws providing various incentives to convert office spaces. Washington, D.C. passed the “Office to Anything Program,” an initiative that grants a 20-year tax abatement for commercial-to-residential conversions by providing a 15-year temporary tax freeze. The City of Boston Planning Department implemented the “Downtown Residential Conversion Incentive Program,” which offers up to a 75% abatement on the fair market-assessed residential value for up to 29 years and applies “As of Right” zoning policies to residential conversions. In January 2025, Los Angeles adopted an updated Citywide Adaptive Reuse Ordinance to simplify the current code requirements, expedite project approvals, and allow conversions of any building at least 15 years old. San Francisco has exempted downtown buildings from certain housing requirements that are challenging to meet for former office buildings and provided a one-time transfer tax waiver for properties converted from office to residential, applicable upon their first sale. Many other cities across the country, including Phoenix, Denver, Pittsburgh, Seattle, Portland, and Minneapolis, have also passed laws easing zoning restrictions and abating taxes all to accommodate office building conversions.
While developers still face challenges when converting office buildings, the good news is local governments are making it easier to adapt the underutilized and often vacant buildings into multi-family properties. With zoning changes and tax incentives, developers can justify the high construction costs and other hurdles when trying to solve the dual problems of housing shortages and dramatically decreased need for office space.
