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FOR IMMEDIATE RELEASE Contact: Don Meyer
December 5, 2022 [email protected]
Study of Denver Business District Examines Office to Residential
Conversion as Solution to U.S. Housing Shortage
With commercial vacancies running high, communities eye unused office space to relieve housing shortage; obstacles remain, including building codes, livability concerns and financial feasibility
Washington, DC – Up for Growth, a cross-sector member network committed to solving the housing shortage and affordability crisis through data-driven research and evidence-based policy, today published an analysis of Denver’s Central Business District (CBD) that examines the potential of converting office space to residential housing, an approach under consideration in many communities with high vacancy rates among commercial properties.
“There is growing interest in office to residential conversion, which shows promise as a solution to the U.S. housing crisis,” said Mike Kingsella, Chief Executive Officer of Up for Growth. “When accounting for factors such as zoning, building codes, financial feasibility, floor plate size, and other factors, expectations regarding the potential of this approach can be appropriately scaled to match the realities of the nation’s commercial real estate markets.”
In its latest policy brief, Office to Residential Conversions: Scalable Opportunity or Too Unique to a City Block?, Up for Growth analyzed real estate data and synthesized survey information from its network of advocacy organizations, nonprofits, investors, and developers. It found a strong desire among survey respondents for immediate solutions that would remove barriers to office conversion feasibility. Detailed in the study are barriers and potential solutions, including:
- Limited available space. The study found only 6 percent of vacant office space in the CBD – five out of 208 office buildings – suitable for conversion, for a total of 1.5 million square feet, representing a fraction of the CBD’s 2022 vacancy rate of 26.4 percent (27.2 million square feet of rentable space). Square footage suitable for conversion was determined after accounting for factors including:
- Systems. Offices may need to be gutted to reroute plumbing, HVAC, and other systems to kitchens, bathrooms, and other spaces in residential units.
- Per Denver code, residential units must have functioning bedroom windows to meet light, safety, and ventilation criteria. Large floor plates often have interior hallways without windows and/or exterior windows that do not open.
- Size. The typical depth of a residential unit is 30 feet, but units in larger floor plates often reach a depth of 45 feet, creating tunnel-like spaces that are difficult to configure for residential use.
- Per code, residential units must be located within 100 feet of a staircase, and buildings often comply with two sets of stairs. Most office buildings have a single stairwell near the center, which would be non-compliant with residential codes.
- Increased financial risk. Commercial rents are typically higher than residential rents – a long-term challenge to financial feasibility. In addition, rehabilitation costs can rival those of new construction due to the need for structural retrofits and expensive alterations. The relative rarity of large office conversions also presents a challenge: Few market comps are available to developers and lenders, depriving underwriters of a vital risk assessment tool.
- Policy imperatives. Nearly 80 percent of Up for Growth members – representing policy, practitioner, and advocacy organizations – believe that policy action is needed to encourage more office-to-residential conversions, which is viewed as a viable approach for producing affordable housing. Among federal proposals is the Revitalizing Downtowns Act of 2021. Authored by Sen. Debbie Stabenow (D-Mich.), the bill would create a 20 percent federal tax credit for office to residential conversation expenses. In exchange, it would require that 20 percent of converted units be affordable to households earning less than 80 percent of the Area Median Income.
“The trend of adaptive reuse of office buildings for mixed use, residential, and workforce housing in the urban core of American cities is here to stay,” said Drew Sparacia, CEO of GBX Group LLC, a historic preservation-focused real estate investment firm. “The greenest building is the one that is already built, and when you can preserve and repurpose a historic building it can be extremely impactful to help maintain the fabric of an urban neighborhood. Transformative projects often require a diverse mixture of programs, tax incentives and public-private partnerships in order to pencil out.”
“Office to residential conversion is a good idea with the potential to become more viable and widespread through targeted, data-driven policies and incentive programs, but it is not a silver bullet that will fix the housing crisis,” said Kingsella. “The current scalability of office conversions may be limited, but as the housing market evolves, we may find more spaces that fit communities’ criteria for livability and the market’s requirements for financial feasibility.”
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Up for Growth® is a 501(c)(3) cross-sector member network committed to solving the housing shortage and affordability crisis through data-driven research and evidence-based policy. In 2022 Up for Growth released a first-of-its-kind longitudinal study, Housing Underproduction in the U.S., that identified a housing deficit across 47 states and in 169 metropolitan areas, revealing a national shortage of 3.8 million homes in 2019, up from 1.6 million in 2012. Learn more at upforgrowth.org.