Site Redevelopment: The Engineering Aspect of Repurposing Office Buildings
The U.S. residential real estate market is experiencing a shortage of available housing. At the same time, commercial office buildings have a glut of empty space available. It seems like there is an obvious solution that would help to solve both of these problems. Unfortunately, the case for repurposing office buildings is not an open and shut one.
The State of the Market
Depending on the statistics used, there is a housing shortfall in the U.S. of anywhere from 1.5 million to 5.5 million units. The National Association of Home Builders (NAHB) estimates that there is a 1.5 million unit difference between the current number of available units for rent or sale and the number that would be for sale in a normal year. The National Association of Realtors (NAR) bases their calculation on the number of construction starts and arrives at a shortage of 5.5 million units. Regardless of whose number you use, there is a serious housing shortfall in the U.S.
At the same time, nearly 17% of office space is currently vacant. This translates into a billion square feet of space lying unused. Office building vacancies were already increasing before 2020, but the shift to remote work during the pandemic exacerbated the trend. There is more vacant office space now than at any time since 1979. Experts expect to see even more in the coming years.
Repurposing As a Solution?
An idea that has come up lately is that of repurposing office buildings into apartments. Office building floorspace is one big open space before it is built out for a tenant. Why not build apartments instead of cubicles, offices and meeting spaces?
Across the country, city planners and even the federal government are embracing the idea. Cities like New York, Boston and Cleveland are promoting the idea of residential retrofitting and offering incentives to do so. The Biden administration has created federal programs and tax breaks, as well.
Initially, it seems like an attractive proposition. The external structure of the building, utilities, parking lots and possibly even green spaces are already in place. Building owners would begin getting rent for spaces that would otherwise be vacant. At the same time, more housing units would be created. Unfortunately, renovating open office building space into apartments poses some significant challenges.
Is Repurposing a Viable Business Proposition?
It would certainly seem that landlords and developers would love to fill vacant spaces, even if it is with a different type of tenant. The problem plaguing many landlords is that buildings are not fully available for renovation due to occupancy overhangs. Although a building may be 50% vacant, that still means that it is 50% occupied, probably by multiple tenants with varying lease terms. Those tenants cannot be simply kicked out. A landlord needs to either wait for the leases to expire or renegotiate. The cost in time and money can doom the project before it begins.
Bureaucracy and Restrictive Zoning
If an office building is suitable and available, the next step is to determine how much of a bureaucratic headache repurposing it to residential space would represent. Urban areas are bound by tightly restrictive zoning laws that may make a residential building impossible. As mentioned earlier, some cities are embracing the idea of repurposing office buildings into residential space. Relaxing zoning regulations is sometimes offered as an incentive.
Still, as with any variance process, landlords can expect to face significant cost and delay. There may be pushback from other property owners and possibly local politicians. It will vary by city, though. For instance, while some city governments may be worried about losing the tax revenue from corporations, others may see a golden opportunity to revitalize the downtown. Expert assistance will certainly be needed in analyzing the zoning situation and navigating the permitting process.
The zoning topic has another effect on the decision, as well. Urban areas that are zoned for commercial office space are not always areas where people will want to live. There may not be schools, stores, parks and transit options in the area. The lack of amenities may limit the appeal of converting office space in an area that is not zoned for residential construction.
Renovation Complications
There are a number of construction factors that complicate the concept of converting office space into residential space. Significant retrofitting of plumbing, electrical and HVAC systems will be needed. These components and their controls are typically centrally located and managed in an office building. Apartments will need to have individual controls and service.
Plumbing in particular is typically confined to the core of an office building, but will need to be extended to all parts of the floor for apartments. New plumbing chases within the building may be required, often necessitating core drilling. This brings on the need for thorough structural evaluation.
The existing HVAC system will likely be more robust than necessary for a residential application. It may not be able to provide temperature control for individual apartments, though. Variable air volume controls or completely new individual systems may be needed. Exhaust systems may be needed to compensate for the higher humidity generated by residential units. Individual electric panels for each apartment will also need to be added. Ceiling heights can make these retrofits anywhere from challenging to nearly impossible.
Utility Considerations
All of the necessary changes to plumbing, electrical and HVAC will have an effect on the total utility requirements for the building, as well. Some buildings may not have enough utility service to meet residential requirements. Increased service for water, sewer and electricity grid connections may prove difficult to access.
Electric service that was sufficient for an office building may not meet the needs of a building full of residential units and their appliances. Service sizes for water and sewer will likely need to be larger for an apartment building. Other existing services for things like cable TV and internet may also be insufficient.
Taken together, all of these requirements may necessitate much more site work than an interior renovation would imply. Significant excavation and demolition may be required for new sewer, water and electrical service. It is important to have a civil engineering partner that can determine the feasibility, risks and cost before the project kicks off.
A Complicated Case
Repurposing office buildings may indeed be the answer to lack of residential housing in some cities. The complexity of doing so merits thorough analysis, though. By some estimates, only 2-3% of office buildings are suitable for repurposing to housing. Tearing down an office building and building townhomes on the site may even be a valid option. Determining the best course of action is where experienced and knowledgeable partners come in.
At Contineo Group, we have that knowledge and experience along with the expertise to accurately and understandably communicate with stakeholders. If creating living spaces from unused office space is an idea you are considering, please get in touch and let us show you how we can help.
