The confluence of two nationwide trends—persistent double-digit vacancies in office space and a stubborn housing shortage—has created an appealing and exciting opportunity for savvy commercial real estate investors. As hybrid work continues, demand for office space appears unlikely to return to pre-pandemic levels. Currently, vacancy rates in the Washington, D.C. area are around 20 percent, in line with the national average. The nationwide housing shortage, meanwhile, has hit a record high of 4.7 million homes, despite a five-year uptrend in new construction. The deficit is particularly pronounced in highly desirable urban and inner-suburban locations such as Alexandria, Virginia.
One strong solution, adaptive reuse, is helping to rebalance the real estate scales by converting this vacant office space into residential homes. Such an approach aligns with broader housing market trends. Multifamily units are in high demand, with deliveries exceeding 500,000 in 2024 for the first time in five decades, and annual net absorption reaching 530,000 the same year. Meanwhile, renters increasingly outnumber buyers in many metro areas, as renting is about 60 percent cheaper than owning a home. Additionally, many local governments are actively encouraging office-to-residential conversions, as they hold tremendous potential, not just to increase supply but also to revitalize downtown districts and neighborhoods that once revolved around 9-to-5 work. Alexandria has emerged as a national leader in this space, ranking second only to Los Angeles in office-to-residential conversion activity as of 2022.
Yet despite the enormous promise that adaptive reuse holds, it’s hardly a walk in the park. Converting office space into desirable housing requires more than simply trading desks for beds. Instead, it demands thoughtful planning from day one, including a deep understanding of design, the ability to navigate relevant regulatory requirements, and a strategic balance of executional discipline and flexibility. For commercial real estate stakeholders that do their due diligence and see an adaptive project through, though, the payoff is undoubtedly worthwhile. Let’s dive into what it really takes for office-to-residential conversion to become a reality.
Site selection
Everyone in real estate knows the importance of location, but site selection for adaptive reuse goes beyond geography. An office building could be in the perfect neighborhood but still be a less-than-ideal candidate for residential conversion. Zoning restrictions, outdated floorplates, structural limitations, and compliance with modern building codes all add layers of complexity to an already high-stakes investment. In fast-changing real estate environments, hyperlocal factors can make or break a reuse project. Understanding which buildings are viable and why can help developers, investors, and cities make smarter bets on the future of urban living.
Some of the most promising candidates are buildings that benefit from grandfathered height and density allowances, allowing developers to unlock more units than current zoning would typically permit. Proximity to transit, job centers, and walkable retail are also important factors to consider, as is compatibility with surrounding residential neighborhoods that can support and integrate new housing without resistance or disruption. Choosing sites located in cities with flexible adaptive reuse policies and pre-established pathways is also smart. Municipalities that have proactively updated zoning policies or created reuse-specific approval tracks give developers a crucial edge, reducing permitting timelines and legal uncertainty.
Alexandria stands out in this regard—not just for its demand profile but also for how its local government has paved the way for transformation. Take CityHouse Old Town, for example. Originally constructed in the 1980s, this seven-story mid-rise office building sits in a walkable, transit-rich submarket of Alexandria. Thanks to its grandfathered height allowance, which is no longer permitted under current zoning, the structure is now being converted into nearly 200 luxury apartments. For the cherry on top, CityHouse Old Town is also located just steps from retail, local Metro transportation, and employment hubs, making it the ideal location for bringing underused assets back to life.
Setting the scope
Choosing the location of an adaptive reuse project is the first step of many. For such projects to succeed, developers must also define a clear return on investment strategy from the outset. This approach includes answering such questions as what differentiates the project and who is its target audience. Location, design, and sustainability features could all serve as key differentiators—and will all affect who is attracted to the result. Whether you target downsizers seeking convenience, young professionals drawn to vibrant urban neighborhoods, or workforce partners looking for attainable housing near jobs and transit, identifying the target audience up front is important, so that the project can be executed with those people in mind. These factors inform design and pricing, but also whether the project is ultimately worth the investment.
When beginning to crunch numbers, a hefty dose of realism is important. One common misconception about reuse is that it’s cheaper than ground-up development. In reality, conversion projects often come with hidden costs and structural unknowns that can challenge budgets. Developers need to implement design-to-budget strategies early and build into them contingency plans for the unexpected. The conversion of CityHouse Old Town offers a prime example of this complexity, as numerous challenges requiring creative thinking arose, including:
- Parking garage reconfiguration: Converting the seven-story office building into residential homes required developers to completely rework two levels of the existing parking garage. The original sloped slabs—designed for cars, not people—were demolished, which removed more than 3,500 tons of structure. Flat concrete floors replaced that portion and required extensive reinforcement.
- Column reinforcement complexity: Next, structural columns had to be fortified with concrete, steel, and carbon fiber wrap. Each column had to be scanned individually via ground penetrating radar [EH1] [EH2] to avoid cutting into critical rebar—a time-consuming and intricate process that was impossible to predict during planning. In addition, code changes since the original construction held the potential to increase costs during repurposing by requiring unexpected updates.
- Nonstandard floor plates: Unlike residential buildings, older office structures often have much larger floor plates, which affected a few floors in this project. To avoid long, narrow residential layouts, the solution involved adding short corridors off the main hallway, allowing units to be entered at their midpoint rather than creating a “bowling alley” effect.
- Atrium demolition: The original four-story covered atrium was expanded to a six-story open-air atrium and courtyard by removing adjacent parking levels and a portion of the seventh floor. Doing so required dismantling the atrium cover and installing complex scaffolding and safety systems, which added time, cost, and logistical challenges not discernible in the initial plans.
The lesson here is clear: Beginning an adaptive reuse project requires an adaptive mindset throughout. Unexpected challenges are inevitable but shouldn’t stop you from doing as much upfront planning as possible. Control what you can and expect surprises.
Key takeaways for developers
Ultimately, adaptive reuse is anything but plug-and-play. When office-to-residential renovations are approached with realism, creativity, and strategic planning, they can unlock new value. But as with anything, success requires a complete understanding of the fundamentals, which I’ve boiled down to five key takeaways for anyone eying an adaptive reuse project:
Location is non-negotiable: No amount of design ingenuity can overcome a weak location. Adaptive reuse works best in places where demand, infrastructure, and amenities already exist. Transit access, walkability, and proximity to jobs and retail are what make older buildings worth transforming.
Flexibility is key: Every legacy structure comes with quirks—odd column placements, irregular floor heights, outdated materials, etc. But such quirks don’t have to be liabilities. Instead, embracing them can unlock a creative advantage. By modeling a variety of home types and layouts early on, developers can turn constraints into unique selling points.
Engage early on costs: Predictive budgeting, including allowances for unknowns and built-in contingency buffers, helps developers avoid financial surprises. Engaging design, engineering, and construction partners early is also critical to identifying risks that might not be obvious in initial plans. Night work, demolition logistics, and public coordination all carry cost and scheduling implications that must be factored in from the start.
Sustainability adds value: Preserving a structure’s core reduces embodied carbon and construction waste while appealing to ESG-conscious renters and investors. Reuse can also lower material costs and shorten timelines, though it requires creative problem-solving to meet energy and code requirements.
Prioritize resident experience: Today’s renters expect more than shelter—they want good design, work-from-home support, and amenitized spaces that enhance daily life. Projects that deliver on those expectations not only lease up faster but also enjoy higher retention and rent premiums.
Understanding these fundamentals overall is a non-negotiable prerequisite for starting any adaptive reuse project.
The bottom line
Buildings shouldn’t sit empty just because work norms have changed—particularly during an era of such high housing demand. And yet, despite the indisputable opportunity, office-to-residential conversions are not for the faint of heart. Challenges, both known and unknown, inhere in any conversion project, which is precisely why adaptive reuse requires a unique balance of discipline and creativity.
For developers who can walk this tightrope, office-to-residential conversions hold tremendous investment potential and an alternative way to reach a market with traditionally high barriers to entry. When executed strategically, they’re a win-win-win: Residents get a unique home that caters to their needs, municipalities get a revitalized neighborhood, and developers get a highly desirable return on investment.
Altogether, office-to-residential conversions are among the most exciting of commercial real estate frontiers. By approaching each project with intentionality, creativity, and executional rigor, developers can deliver housing while reshaping the urban landscape for the better.
More ULI Resources on Conversions:
