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Adaptive Reuse: Rethinking Commercial Spaces

Updated: Jul 27, 2022

Written By: Taylor Nickel

With national office vacancy rates currently sitting at 16.5% and companies continuing to reduce the space they dedicate to each employee, building owners are beginning to explore new avenues for financial opportunity. In comes residential adaptive reuse.

Simply put, residential adaptive reuse takes an existing structure that was originally built for another market segment (office, retail, industrial, etc.) and converts it to multifamily living. Residential adaptive reuse has been gaining popularity over the last decade, and the trend is expected to continue in the wake of remote and hybrid work. In fact, 2021 saw the most multifamily conversion projects since the trend began to gain popularity in 2010. While residential adaptive reuse can take place in many structures, including industrial buildings and hotels, it is expected that 25% of forecasted multifamily conversions will take place in office buildings.

Residential adaptive reuse has many economic selling points, including reduced vacancy rates and the ability to raise rent values in both markets. The pandemic saturated the market with empty office buildings in downtown central business districts, creating a unique opportunity for developers to flip sites into much needed multifamily housing. The centrally located office buildings create a large incentive to turn the vacant office space into expensive, highly desirable housing.

Compared to new construction, residential adaptive reuse usually has a smaller environmental impact. Aside from reusing building stock, adaptive reuse reduces environmental impact by conserving resources and reducing waste as they relate to material manufacturing and transportation. It also often costs less and takes less time. But that’s not always the case.

While adaptive reuse has many benefits and seems to offer a unique and lucrative opportunity for investors and developers, it’s not quite as popular as one might expect. To start, in cities where land is relatively cheap, new construction makes more sense from a financial and regulatory standpoint. Adaptive reuse works best in cities where land is a premium, or when buildings have become so devalued. Existing strict zoning laws and building codes can also make the process more costly and time intensive.

Despite its challenges, adaptive reuse has many success stories. One of those is Detroit, one of the hardest hit cities in the late 20th century. Adaptive reuse became an important part of the city’s revitalization. Rather than using a building-by-building approach, the city is using a 50 year strategic framework to analyze viable reuse possibilities city-wide and combat common barriers, like zoning laws and building codes. 900 buildings are a part of this revitalization plan.

While adaptive reuse is not necessarily a new concept, it is a fresh idea for many commercial real estate owners. Following the pandemic and heightened vacancy rates, buildings owners are looking for opportunities to diversify their portfolio. These factors have driven the popularity of adaptive reuse - specifically in office to residential conversions. Converted apartment building projects doubled from 2020 to 2021. Given its benefits in both sub-markets we will likely see the uptake in residential adaptive reuse continue to rise.

Given the increase in online shopping and decreasing prevalence of brick-and-mortar retail, empty shopping malls are likely to be the next big opportunity for adaptive reuse.


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