“Adaptive Reuse” Trends in the U.S. Real Estate Market

WASHINGTON DC: A few blocks from the White House, an unassuming building in downtown Washington that once housed offices used by the US Department of Justice is set to be converted into housing for hundreds of people.

The transformation of vacant office space is part of a wave of “adaptive reuse” projects that have swept the U.S. real estate market in 2021, where developers have bought up hotels and offices that were struggling to do business and have announced their intention to turn them into apartments.

“The market has spoken and it has said the value is greater for a conversion than for it to continue as office space,” said Michael Abrams, chief executive of Foulger-Pratt, the property development company that is transforming the 14-story building on New York Avenue. in 255 apartments.

A survey by apartment listing service RentCafe found around 20,100 apartments were built from converted properties in the US last year, nearly double the number converted the year before. Such conversions could offer a way forward for America’s downtown areas, which have not been the same since office workers fled when Covid-19 broke out nearly two years ago, leaving landlords and struggling local businesses.

“The slow recovery in the office market is just going to make it much more expensive to transport vacant office buildings,” Abrams said. Conversions can also play a role in alleviating the shortage of affordable housing, especially in cities like Washington, where rents are notoriously high. are a feature of life.” From a global perspective, we just need more supply.

By having more supply, house price growth will decrease and rents will decrease,” said Lawrence Yun, chief economist of the National Association of Realtors.

even more expensive

Despite the slowdown caused by Covid-19, the median price of existing homes has climbed 15.8% during 2021 and last month supply had reached an all-time low, according to NAR data, likely exacerbating a affordable housing crisis that preceded the pandemic.

In 2017, 48% of renters were considered “rent-burdened” by the US Government Accountability Office – meaning they paid more than 30% of their income in rent – a figure that had risen by six percentage points in 2017. over the previous 16 years.

The United States, on the other hand, is full of offices. Many of them dating from the 1980s are now too old to be attractive for business, said Brookings Metro member Tracy Hadden Loh. With their designs centered around outdated needs like space for filing cabinets, is obsolete,” she said in an interview.

Business withdrawal

Marc Ehrlich, chief investment officer at Rose Associates, which has converted New York offices into housing, said such projects tend to be “well-located properties that require higher and better utilization.” One of his company’s latest ventures is transforming an office once used by telecommunications company AT&T into a place people want to live.

Lacking amenities like covered parking, the building is unlikely to attract commercial tenants, Ehrlich said. However, the new apartments will include coworking spaces, as many tenants will likely want to continue working from home, he said.

In Washington, developers are rushing to properties formerly leased by the region’s largest employer, the federal government, including The Wray, an office building used by the State Department, but which has been completely renovated to house apartments .

The only signs of its former use are in the lobby, where the tiles are original, as is a directory listing the names of State Department offices once based there. “The pool of tenants returning to these buildings is significantly reduced and that’s what’s emphasizing that level of ownership, that’s what creates the opportunity,” Abrams said.

Adaptive reuse projects tend to command high rents, Loh said, because they often require expensive renovations such as building new bathrooms in buildings where they were once communal. Although expanding inventory has been shown to relieve price pressures elsewhere in the housing market, “It’s not a solution to the housing crisis,” she added.

“It’s a solution for revitalizing areas like downtowns that are super dominated by places like offices.”