NYC wants to convert unused offices into housing units through relaxed regulations, incentivization

Since the start of the pandemic, cities across the United States have seen a dramatic increase in residents working from home, and in correlation, more unused offices. While local governments are still grappling with the best way to overcome this challenge, converting vacated commercial space into residential dwellings is a clear solution, as it simultaneously gives the unused offices a new use and tackles regional housing needs.

“The need for housing is desperate, and the opportunity offered by underused office space is clear—we know what we need to do,” said New York City Mayor Eric Adams in a statement about a recent publication, the New York City Office Adaptive Reuse Study. The study outlines 11 recommendations that would change state law and city zoning requirements to make it easier for contractors to convert 136 million square feet of office space into housing. The city estimates converted offices could create as many as 20,000 new homes for around 40,000 people over the next decade.

“These concrete reforms would clear red tape and create the incentives to create the housing we need for New Yorkers at all income levels,” Adams said.

Rather than mandate change, the city’s Office Adaptive Reuse Task Force, which is behind the research, recommends fostering “a regulatory environment that enables market-driven investment,” the report says. “The ability to repurpose unviable office buildings will support the evolution of New York City’s building stock and business districts into more dynamic places where a greater number of people live as well as work.”

Relaxing regulations is also beneficial for the owners of commercial real estate who have been hit hard by evolving work norms. In the last few years, for example, the percentage of Manhattan office space available to rent increased from 10% pre-pandemic to 20% last year, and its remained at the same rate since then. Lower-quality spaces have been hit the hardest, as the sudden availability of space has allowed tenants to secure better rentals.

Proposed changes include flexibility in regard to light, air, and yard requirements. The report also notes that many of these regulations have not been updated for several decades. 

It’s not just New York that’s taking action to fill under and unused offices. Nationally, the real estate software company CommercialEdge pegs the office vacancy rate at a little more than 16%. And data from Yardi Matrix compiled by RentCafe documents a 43% jump in office conversions in 2020-2021 over 2018-2019. Over 2020-2021, offices made up 40% of all buildings converted to residential rentals that same year. Other types of buildings included warehouses, hotels, factories, and schools. Washington, D.C. had the most converted apartments that year.

Cities are tackling the challenge through relaxed regulations, like New York City, and also through incentivization.

Most recently, Pittsburgh, Pa. put out a request for proposals last week seeking developers interested in converting unused offices and commercial space into affordable and mixed-use housing in the city’s downtown area. The local government there re-appropriated $2.1 million in American Rescue Plan Act funding last year to support the initiative, joining a $9 million regional effort “aimed at increasing the supply of affordable workforce housing, and support the overall health and vitality of downtown Pittsburgh,” according to a brief about the initiative.

Eligible project proposals must be in the downtown area, must consist of vacant commercial space, and at least 20% of the units need to be affordable.