As cities across the country grapple with record-high office vacancies and a persistent housing shortage, office-to-residential conversions are increasingly seen as a potential solution to both problems.
Nearly 71,000 apartments are slated to emerge nationwide from office conversions in 2025, according to a RentCafe report, which would mark a 28 percent year-over-year increase. Since 2022, the number of such transformations has almost tripled, and developers, policymakers and urban planners have continued to monitor the economic shifts that have been accelerating this trend.
KTGY, a planning, architecture and design firm of more than 400 specialists, has been involved in such projects for years. We asked Director of Research and Development Marissa Kasdan to expand on the key factors fueling OTR conversions and the ways cities can reinvigorate their business areas through successful transformations.
What shifts in the office market, tenant preferences or municipal regulations do you see driving the OTR trend?
Kasdan: Cities experiencing particularly high commercial office vacancy rates are creating policies to remove red tape for office-to-residential conversion projects. For example, New York, Dallas and Washington, D.C., have all taken significant steps to encourage new office-to-residential development. Modified zoning laws allow residential development in commercial zones, removal of required traffic studies and public hearing streamlines the approval process, and tax incentives tip the scale on economic feasibility.
After analyzing older Los Angeles office buildings, KTGY created the Upcycle Tower concept, which aims to add value by transforming parts of underutilized office high-rise buildings into residential spaces.
Are there other cities or regions where you believe this trend will take off? What makes these markets ripe for this transformation?
Kasdan: A combination of high office vacancy and low residential inventory creates a prime condition for office-to-residential conversion. Atlanta, Denver, Phoenix, the San Francisco Bay Area and Seattle have all been identified by a 2024 Urban Institute study as prime candidates to benefit most from such conversions.
With consideration for absorption rates, office vacancy rates and market rents, these municipalities could solve both their distressed office and housing supply challenges by encouraging this type of intervention. Calgary, Canada, is one of the first cities to recognize a public subsidy—on a per-square-foot basis—is needed to catalyze OTR conversions.
What are the biggest hurdles office building owners face when considering such adaptive-reuse plays?
Kasdan: From a design perspective, office buildings typically contain larger floorplates and inoperable windows, undesirable features for residential buildings. Transforming the deep floorplates to accommodate residential units brings up challenges to provide the natural light in more internal spaces. Areas near the core of the building become wasted space, often limiting the overall building efficiency.
Office-to-residential conversion projects can also face financial challenges, as office rents average higher than apartment rents, nationally, on a per-square-foot basis. Office leases typically run longer than residential rental agreements, adding stability within the market. Additionally, the per-square-foot cost for construction to convert office to residential is typically higher than ground-up residential construction, with the primary savings being in a shorter delivery turnaround.
However, adaptive-reuse solutions become an attractive option when timelines are reduced and tax incentives can bridge the financial gap. For example, California’s Assembly Bill 1490, approved in 2023, expedites a typically long review process by limiting office-to-residential projects with 150 units or fewer to no more than 60 days.
According to KTGY’s Upcycle Tower concept, the roof of an adjacent parking garage could be upgraded to include additional outdoor fitness spaces and lounge areas.
Tell us more about your Upcycle Tower concept. In what way is it different from other approaches to conversions?
Kasdan: For the Upcycle Tower design concept, we looked at a common type of building found in downtown Los Angeles: steel-framed towers built in the 1980s and 1990s with about 30 to 40 stories. In collaboration with structural engineer John A. Martin & Associates and construction company Swinerton, we looked at the upgrades required for such a conversion and determined a structural retrofit system would address the need for seismic upgrades. The design proposes a column-to-beam structural detail to reduce stress at the connection points in a relatively non-invasive manner.
While most mixed-use high-rise buildings locate offices at the lower floors of the building and residential units above, the Upcycle Tower concept proposes relocating existing office tenants to the upper floors of the building, allowing them to remain in place during construction. The office tenants continue to use the existing chiller system on the roof of the building for HVAC, while the newly constructed residential units use a new mechanical system installed at the ground level. This phasing allows the building to remain partially functional throughout the conversion process.
Upcycle Tower also examines solutions for adding value through upgraded amenity features. With the transition from office to residential, the parking needs of the building are reduced, making the upper floor of the adjacent parking structure available for conversion to an upgraded residential amenity deck with fitness features and an outdoor pool.
How are green design principles integrated into your concept?
Kasdan: Fundamentally, adaptive reuse provides a more sustainable solution than ground-up construction by minimizing the construction waste generated by removal of the existing building. Upgraded mechanical systems and insulated exterior façades and windows add to the efficiency of the newly renovated building.
A new outdoor plaza could provide additional seating and connect the sidewalk to the building’s lobbies.
How do you expect 2025 to evolve in terms of the number of office-to-residential conversions?
Kasdan: As we see more and more companies and institutions pulling their staff back to the office, we will inevitably see changes in the commercial office market that will likely affect the pace of office-to-residential conversion projects. However, these policy changes do not affect the housing shortage that continues to plague cities across the country.
Additionally, demand remained continuous for amenity-rich, Class A office spaces, while basic, dated office buildings have long struggled to fill vacancies. To reestablish value in the market, underperforming office buildings will need to be reimagined, whether as residential, upgraded commercial office or an alternative use. Best use for future transformations largely depends on the specifics of the local market and political enthusiasm.
How do you think OTR conversions will change the urban landscape and cities’ approach to housing shortages in the long term?
Kasdan: In early zoning policies, cities—particularly car-centric areas like Los Angeles—established a horizontal separation between commercial office buildings and residential development. These policies led to suburban sprawl and car dependence, while creating urban communities lacking vitality during evenings and weekends. Prior to the post-pandemic shift toward remote work, municipalities had already recognized the potential benefit of integrating residential development into urban cores.
Diversity of functions grows the tax base, while 24/7 visibility increases safety. The next step will be further developing the support spaces necessary to sustain new residential components. Grocery stores, childcare facilities and public parks form the third leg of the triangle, making city centers desirable communities positioned for long-term success.
