from Santa Barbara, California-based Yardi Matrix and RentCafe found, unsurprisingly, a 25% jump in converted apartments compared to pre-pandemic years, translating into about 28,000 new rental units delivered nationally in 2020 and 2021.
While office buildings are the most popular property type to be converted to housing since the pandemic, making up 40% of all adaptive-reuse apartments, it's not the only type of asset getting converted. Compared to the 2018-2019 period, the number of apartments converted from health care buildings increased 212% in 2020 and 2021, while religious buildings saw a 73% increase and hotel conversions grew by 65.6%, according to Yardi Matrix.
Several city governments are developing programs intended to make building conversions easier, through policy changes or financial incentives. Many developers say while a conversion from office space to, for example, apartments makes sense from a demand perspective, costs are a major hurdle to making such deals pencil out.
To pursue a conversion, groups need an appetite for some amount of risk, Whelan said. There may be less capacity for that in the current economy. "Three or four years ago, there probably weren't a lot of people earmarking capital to shore the office market, and to think about what else office buildings could be," he said."Now that more people recognize that this is a secular change, coupled with the significant challenges that the rising interest-rate environment is having on everything, it’s going to be a very, very difficult time for most single-purpose office assets to retain solvency.