Cities reviving downtowns by converting offices to housing
NEW YORK >> On the 31st floor of what was once a towering office building in downtown Manhattan, construction workers lay down steel bracing for what will soon anchor a host of residential amenities: a catering station, lounge, fire pit and gas grills.
The building, empty since 2021, is being converted to 588 market-rate rental apartments that will house about 1,000 people. “We’re taking a vacant building and pouring life not only into this building, but this entire neighborhood,” said Joey Chilelli, managing director of real estate firm Vanbarton Group, which is doing the conversion.
Across the country, office-to-housing conversions are being pursued as a potential lifeline for struggling downtown business districts that emptied out during the coronavirus pandemic and may never fully recover. The conversion push is marked by an emphasis on affordability. Multiple cities are offering serious tax breaks for developers to incentivize office-to-housing conversions — provided that a certain percentage of apartments are offered at affordable below-market prices.
In January, Pittsburgh announced it was accepting proposals to produce more affordable housing through the “conversion of fallow and underutilized office space.” Boston released a plan in October aimed at revitalizing downtown that included a push for more housing, some of which would come from office conversions. And Seattle launched a competition in April for downtown building owners and design firms to come up with conversion ideas.
In the nation’s capital, Mayor Muriel Bowser has made office-to-housing conversions a cornerstone of her plan to repopulate and revitalize the district’s downtown. Her “comeback plan” for the capital city, announced earlier this year, seeks to add 15,000 new residents to the downtown area, adding to the approximately 25,000 who already live here.
Bowser’s administration says about 1 million square feet of downtown real estate is already transitioning from commercial to residential. But the city needs another 6 million square feet converted to meet her goal of 15,000 new downtown residents.
“We’re not going to have as many workers downtown as we had before the pandemic,” Bowser said earlier this year. “Our job is to make sure that we are getting more people downtown.”
But the conversion push has some skeptics. Housing advocates worry that the affordable housing requirements could get watered down. And even advocates of the conversion model say giving tax breaks to wealthy developers isn’t the best tool to achieve the goal.
“Developers who feel it’s going to benefit their bottom line will do it without an incentive,” said Erica Williams, director of the D.C. Fiscal Policy Institute. “This is a very costly proposal for an unproven program.”
And, as increasing numbers of employers turn to hybrid work models, there’s the question of whether people will want to move to downtown areas if they’re not required to be there every day.
“You have to make downtown a neighborhood — somewhere that’s living and playful and active,” Pittsburgh Mayor Ed Gainey told an panel at the United States Conference of Mayors meetings in Washington last January. “How do you make it a neighborhood that has a vibe where young people want to be?”
Jordan Woods, a 33-yearold federal government contractor, moved to an apartment in downtown Washington in 2019, attracted in part by the appeal of being able to walk to work. He said he was able to find dependable stores and restaurants that stayed open at night, but then the pandemic came and downtown became “like a moonscape” for more than a year.
“And even before the pandemic it was still missing basic stuff like playgrounds and dog parks and a normal non-whole Foods grocery store that I could walk to,” Woods said. “I wouldn’t say I regret it, but if I was considering the same move right now, I’m not sure I would do it.”
Chuck D’aprix, principal at Downtown Economics, a development consulting firm, said attracting new residents to a former downtown business district holds specific chickenand-egg issues. The businesses that residents need are different from those of daytime office workers.
They include mid-size affordable grocery stores and day-care centers, pet supply shops, hardware stores and auto repair garages. And those places need to stay open past office hours.
“A lot of those services simply aren’t available right now in small city downtowns or mid-sized city downtowns, you know, they close up at night,” D’aprix said.
But with vacancy rates at downtown office buildings continuing to rise, from 12.2% in the fourth quarter of 2019 to 17.8% in the first quarter of 2023, according to the real estate firm CBRE, there’s an urgency to do something. Some of the hardest hit places include San Francisco with a preliminary vacancy rate of 29.4%, Houston 23.6%, Philadelphia at 21.7% and Washington at 20.3%.
In New York City, where the vacancy rate is 15.5%, Mayor Eric Adams announced in January a plan to bring 500,000 new homes to the city including what he calls rent-restricted units.
A key piece of that plan is to rezone parts of midtown Manhattan which currently only allow office and manufacturing spaces. Along with the rezoning, the mayor’s office is pushing bills in the legislature to approve tax breaks that would entice developers to invest in conversions that include affordable units as well as changes in the state’s multiple dwellings law that would allow buildings built through 1990 access to more flexible regulations that make conversions easier.
“The ability to really take our outdated office stock in the city is a true win-win because we not only shore up the office market, given the vacancy rates that we are seeing, but we also help reactivate our business districts, which really suffered right during the pandemic,” Deputy Mayor Maria Torres-springer said.
“We can also make a dent in this dire housing crisis that we’ve been in,” she said, noting that more than 70,000 New Yorkers sleep in shelters every night and there’s “essentially a functional zero-vacancy rate for the most affordable apartments in our city.”