What are the Considerations for Converting Office to Residential, and How Can BC Group Help?

Converting office space into a residential unit involves several considerations, including providing the necessary amenities to ensure comfort and functionality for the tenants. The specific amenities you can provide will depend on the size and layout of the space, local regulations, and the preferences of the residents.

Experienced project teams and owner’s representatives can help developers decide which office buildings can be converted into apartments and condos, but it takes real expertise to determine if the correct core-to-exterior dimensions exist, among many other factors.

Cities across the country that are encouraging conversions with tax breaks and other financial incentives know it’s necessary to offset economic forces faced by owners of these buildings, as generally, the highest and best use is for offices. However, when there is no longer the demand for office space, that formula needs to change. But not all buildings are suitable.

Many earlier buildings feature large cores far from natural light and sources of fresh air. With laws mandating that residential buildings have “light and air” requirements, this is among the first barriers to address.

Common areas for gatherings, working, laundry facilities, workout areas, pet-focused areas, communal kitchens, TV lounges, leasable storage areas, Zoom room, maker space and even arcades are some of the uses that are being incorporated into these core areas on each floor to serve as amenities that attract and retain residents while helping to create “community”.

Of course, outer windows or walls that are incorporated into living units need to be replaced with windows providing insulation and the ability to be opened. Bathrooms, kitchens and thermostats need to be in place in each unit, often meaning a major overhaul to the mechanical, electrical, and plumbing systems.

Other developers are getting creative by adding penthouse apartments to the top where allowed and feasible, adding to the economic viability and appeal of certain projects.

Many are also modifying outer walls to include balconies and other exterior features to break up the sterile block look. And perhaps surprisingly, cities with older, prewar office buildings that were built before modern HVAC systems made acres of artificially lit and mechanically ventilated space possible, are even better for residential conversion as they have slimmer profiles.

Leading the way in taking advantage of that is Philadelphia, home to more units converted from office to residential than any other major US city in 2020 and 2021, according to a report by RentCafé (followed by DC, with New York rounding out the top 10).

One reason for New York’s inclusion is favorable zoning laws that encourage conversions on buildings built in or before 1961 in certain areas of the city. This zoning differs from existing zoning – existing floor area that exceeds the maximum otherwise permitted, rear yards as shallow as 10 feet in lieu of the 30 feet currently required, and deeper apartments with interior, mechanically ventilated, and windowless rooms.

In addition to the physical transformation of the building itself and projected project estimates and revenues, the development team must research local building codes and zoning regulations, as well as market research to understand preferences and needs of potential residents.

At BC Group, we’re continuing to help clients identify properties that can be profitable, including those within the challenging economic parameters that conversions present.