Office-to-Residential Conversions: Can They Really Solve the Vacancy Crisis?

As vacancy rates in office buildings continue to climb, cities across the U.S. are taking a closer look at a once-niche concept: converting underused office properties into residential housing. The idea has gained momentum in recent years—but how viable is it really?

Let’s take a neutral look at the potential, the obstacles, and the policy environment surrounding office-to-residential conversions in 2025.

Office Vacancy Is Still a Challenge

Office vacancy remains a persistent issue, especially in specific markets. According to CoStar, U.S. office vacancies reached a record high of 19.8% in Q2 2025, with cities like San Francisco and Chicago facing rates above 25%. 

This shift is driven by continued adoption of hybrid work models, corporate downsizing, and slower leasing activity in non-trophy assets.

The Case for Conversion

With the U.S. also facing a housing shortage—particularly for workforce and affordable units—some stakeholders see an opportunity in vacant or underutilized office buildings. The Biden administration has publicly supported this concept, introducing a set of actions in 2023 to encourage commercial-to-residential transitions as part of a larger housing initiative. 

Federal agencies like the Department of Transportation (DOT) and Department of Housing and Urban Development (HUD) have issued guidance to support these conversions through financing tools such as Community Development Block Grants and low-interest loans.

From a planning perspective, cities such as New York, Chicago, and Washington, D.C. have updated zoning laws or introduced pilot programs to support these transitions. 

Architectural and Financial Hurdles

Despite policy support, not every office building is a strong candidate for residential conversion. According to Gensler, only about 20% to 25% of existing office stock is suitable for full residential use without major structural alterations. 

Common challenges include:

• Deep floor plates that limit natural light access

• Zoning restrictions around residential use in commercial zones

• High construction costs, which can reach $300–$500 per square foot

• Older infrastructure needing full systems replacement
  
  

An analysis by the Urban Land Institute (ULI) also notes that conversions often only make economic sense in locations where market-rate residential rents are high enough to justify the investment. 

Are Conversions Happening?

A report by RentCafe shows that about 55,000 new apartment units are in the 2024 pipeline via office-to-residential conversions, representing a fourfold increase since 2021. 

Cities like Los Angeles, Philadelphia, and Washington, D.C. have seen notable success stories. However, conversions are still a small fraction of new residential development nationally.

The Bigger Picture

Office-to-residential conversion is not a catch-all solution, but it can play a role in both managing underperforming office inventory and alleviating housing supply constraints, especially in urban cores with existing infrastructure.

Going forward, the success of this trend may depend on a mix of:

• Local government willingness to adjust zoning and permitting timelines

• Developer access to capital and incentives

• The broader direction of remote work adoption and office utilization

Eve’s Hot Take

We love when beautiful historical structures are preserved in cities and given a new purpose. There are so many wonderful examples in cities across the world on a large and small scale. For some markets and buildings, it may offer a path forward. For others, the physical, financial, and regulatory barriers will remain too steep without continued reform and investment. It is always inspiring when we can find a way to preserve our history and modernize for our future. Let’s face it, old brick and mortar is cool, deep with history, and gives a space a gravitas that modern decorations struggle to replicate. So we encourage all developers, owner-users, and investors to consider converting. Call us, we know some great sites and will be with you every step of the way.