If you work in commercial real estate, you may have noticed one of the biggest storylines playing out across the industry: building owners are reimagining outdated office buildings as residential units, hotels, and other adaptive uses. With housing shortages in nearly every major metropolitan area — and office vacancies lingering above pre-pandemic levels — office-to-residential conversions are gaining momentum as a solution to social needs and a strategic play for owners and developers.
But while the concept sounds straightforward on the surface, its execution is anything but. Converting offices into apartments or condos involves a complex mix of zoning, design, financing, and construction challenges that require expertise, patience, and creativity. The trend is gaining momentum, even though projects of this size require some outside-the-box thinking.
Why office conversions are rising
Two converging market dynamics are driving the push to repurpose old office buildings.
- The housing shortage
U.S. cities face a deficit of millions of housing units. Demand continues to outpace supply, especially for affordable and workforce housing. Converting underused offices into apartments helps fill the gap. - Elevated office vacancies
Even as some companies mandate a full week return-to-office for their employees, many employers have embraced hybrid work models. Older buildings, especially Class B and C properties, struggle the most with attracting tenants. For many owners, repositioning these assets for housing or mixed-use purposes offers a more viable long-term option (and may be less costly than renovating and upgrading to achieve Class A status).
For investors and developers, conversions can help stabilize the residential market and reduce oversupply in the office sector.
Benefits of office-to-housing conversions
From a CRE professional’s standpoint, the upside of these projects can be pretty compelling:
- Market demand alignment: With strong residential demand, completed conversions often lease quickly.
- Value creation: Redevelopment can significantly boost NOI by shifting from underperforming office rents to higher-yielding or mixed-use models.
- Public incentives: Many municipalities are introducing tax credits, zoning adjustments, and funding programs to encourage conversion.
- Community impact: Beyond financial returns, these projects can revitalize downtown areas, reduce blight, and improve walkability.
Key challenges in the conversion process
While the opportunity is real, it’s not without hurdles. Whether you’re a developer or building owner, you’ll need to navigate some challenges.
Zoning restrictions often limit residential use in areas traditionally designated for offices. Some cities are relaxing rules, but the approval process still takes time and can be politically fraught. Building codes may also impose requirements — like light, ventilation, and accessibility — that are challenging to incorporate into older buildings.
Offices don’t always translate neatly into livable units. Large floor plans can create deep interior spaces lacking natural light. Ceiling heights, plumbing layouts, elevator locations, and window placements can complicate the process. Successful conversions often require creative design solutions, like carving out interior courtyards or reconfiguring the building’s core.
Adaptive reuse is rarely cheaper than reconstruction. The demolition, retrofitting, and structural work can quickly drive up costs. Add labor shortages and higher material costs stemming from tariffs or artificial inflation, and the financial model gets pretty tricky. Developers often must weigh whether conversion or ground-up development makes the most financial sense.
Lenders may hesitate to finance conversions because of their complexity and perceived risk. Securing financing requires a strong team, a clear feasibility study, and in some cases, public-private partnerships.
Success stories
Despite the challenges, cities countrywide are seeing successful conversions.
- New York City: Older office buildings in Midtown have been reimagined as mixed-use residential towers, aided by zoning reforms and tax incentives. For example, the city council recently approved the Midtown South Mixed-Use Plan, the “largest residential rezoning plan in two decades that is slated to create nearly 10,000 new housing units.”
- Washington, D.C.: The city has prioritized downtown conversions as part of a broader strategy to revive its central business district, saying “the buildings near the city’s Central Business District have a strong conversion potential… and downtown D.C. only has 13% residential use on a square footage basis, presenting a bright opportunity for rebuilding.”
- Denver: Adaptive reuse projects are emerging as part of the city’s strategy to address housing affordability, with some properties incorporating affordable units alongside market-rate apartments. According to Urban Land, “Denver has become an innovation incubator for affordable housing solutions… [in 2026], Denver is on track to enlarge its housing inventory by 9%.”
Each market has its own dynamics. The common denominator: Public sector support paired with private sector innovation.
Other uses for outdated offices
Housing might dominate the headlines right now, but it’s not the only option. CRE professionals are also exploring converting offices (and banks!) into:
- Hotels, which can transform into spacious guestrooms and conference rooms. The Louisiana National Bank Building in Baton Rouge was converted into The Watermark, an upscale boutique hotel within the Marriott Autograph Collection.
- Education and healthcare institutions, such as universities, medical offices, and research facilities, are increasingly considering repurposed office spaces.
- Mixed-use hubs that combine retail, residential, and co-working within a single adaptive use project to create vibrant, 24/7 environments, like Austin’s Holly Commons, which hosts boutiques, bars, restaurants, offices, and companies.
- Community and civic spaces, which were once outdated offices, are being revitalized as libraries, cultural centers, or nonprofit hubs.
Exploring these alternatives can diversify revenue potential and hedge against an overreliance on residential demand.
How to approach a potential conversion
If you’re evaluating whether an office building is a good candidate for conversion, consider its:
- Location. Is it in a neighborhood with strong residential demand and amenities?
- Physical characteristics. Does its layout lend itself to smaller units or access to natural light?
- Financial feasibility. How do projected conversion costs stack up against expected rents or sales?
- Policy environment. Are there local incentives or fast-track programs that could support the project?
Conduct thorough due diligence with input from architects, contractors, lenders, and zoning experts before you move forward.
The role of policy and public incentives
Local governments play a huge role in determining whether conversions succeed at scale. Cities that want to encourage conversions are experimenting with:
- Relaxed zoning laws to permit residential use in office-heavy areas.
- Streamlined permitting processes to reduce time-to-market.
- Tax credits or financing support for projects that include affordable housing.
- Partnerships with nonprofits to ensure equitable outcomes.
For example, Pennsylvania’s new housing construction has lagged behind demand for over two decades, leading to significant increases in rent prices (46%) that outpace wage growth. The primary obstacles? Restrictive zoning regulations, complex and lengthy permitting processes, and rising construction costs. “Harrisburg and Lancaster have begun to repurpose [office] buildings to increase housing affordability… Philadelphia [is] looking to convert underused office buildings into residential units to ameliorate the housing shortage.”
CRE professionals should watch these evolving programs. The difference between a doable project and one that never aligns with budget and other constraints often comes down to policy.
The future of office conversions
Not every office building is destined to become housing or a hotel, but the trend is here to stay. As the CRE industry continues adapting to shifting demand patterns, conversions offer a pathway to breathe new life into obsolete assets while meeting community needs. The key is flexibility. Conversions require thinning beyond traditional asset classes, embracing cross-disciplinary collaboration, and anticipating shifts in market demand and policy. Whether you’re a broker, investor, developer, or lender, understanding this trend — and positioning yourself as a knowledgeable partner — can open the door to new possibilities.
Are you a commercial real estate investor or seeking a specific property to meet your company’s needs? We invite you to talk to the professionals at CREA United, an organization of CRE professionals from over 90 firms representing all disciplines within the CRE industry, from brokers to subcontractors, financial services to security systems, interior designers to architects, movers to IT, and more.
