The Evidence on Office-to-Residential Conversions: Can Empty Towers Solve the Housing Crisis?

The premise is almost irresistibly intuitive: American cities are grappling with a severe shortage of residential housing, while simultaneously staring down millions of square feet of vacant commercial office space. The obvious solution is to convert the latter into the former. Yet for years, the real estate industry cautioned that adaptive reuse was a niche endeavor, constrained by stubborn architectural realities and unforgiving financial math. Now, a critical mass of post-pandemic data, alongside aggressive new municipal policies, suggests the market has finally crossed a tipping point.[8]

The scale of the shift is now visible in national commercial real estate metrics. According to a recent analysis by CBRE, 2025 and 2026 mark the first years since at least 2018 where more office space is being removed from the U.S. market than added to it. Across the 58 largest markets, 23.3 million square feet of office space is slated for demolition or conversion this year, easily outpacing the 12.7 million square feet of new construction. The national conversion pipeline has swelled to 81 million square feet of planned and active projects, representing nearly 2 percent of total U.S. office inventory.[1]

Despite this momentum, the evidence clearly shows a physical ceiling to the trend. A comprehensive study by the National Bureau of Economic Research (NBER) evaluated commercial properties across the 105 largest U.S. cities to determine their architectural viability for residential use. The researchers found that only about 11 percent of existing office buildings are physically suitable for conversion. If all of these viable properties were transformed, it would add approximately 400,000 new apartments to the national housing stock.[2]

The primary barrier is the shape of the buildings themselves. Many office towers constructed in the 1970s and 1980s feature massive, deep floor plates designed for sprawling cubicle farms. Because residential building codes strictly require operable windows and natural light in every bedroom, the deep, windowless interiors of these structures become dead space. To make these buildings work, developers must employ aggressive architectural interventions.[1][6]

Design firms have developed a playbook to circumvent these physical limitations. Architects frequently carve "blind shafts" straight down through the core of a building, sacrificing total square footage to create new interior facades that allow sunlight to reach deeper into the structure. Alternatively, the windowless core of a deep floor plate can be programmed with shared amenities—such as fitness centers, theaters, and coworking lounges—preserving the valuable perimeter space for the actual apartments.[6]

Even when a building is physically suited for conversion, the financial mechanics remain daunting. The Brookings Institution notes that in most markets, office-to-residential conversions do not make economic sense on their own. There is frequently a gap between the current acquisition value of the office building plus the high cost of conversion—which generally ranges from $250 to $650 per square foot—and the projected revenue the new apartments will generate. High interest rates have further compressed these margins.[1][4]

To bridge this financial gap, local governments have begun deploying massive public subsidies, viewing conversions as a necessary tool to save downtown tax bases and increase housing supply. In New York, zoning reforms under the "City of Yes" initiative were paired with a new state tax abatement known as 467-m. This program offers developers up to a 35-year property tax exemption if they convert non-residential buildings into rentals and reserve 25 percent of the units as income-restricted affordable housing.[5][6]

The policy intervention in New York has triggered a gold rush. The city is on track to start roughly 9.5 million square feet of office-to-residential conversions in 2026 alone, more than double the volume seen in the previous year. Developers are racing to secure their change-of-use permits before the initial legislative deadlines expire, proving that when the financial math is subsidized, the private sector can move with remarkable speed.[5][6]

Other major metros are following suit with their own tailored incentives. The Boston Planning & Development Agency launched a Payment in Lieu of Taxes (PILOT) program that provides an average tax abatement of up to 75 percent for up to 29 years. In exchange for the fast-tracked permitting and tax relief, developers must ensure that 17 percent of the newly created units are deed-restricted for households making up to 60 percent of the Area Median Income.[7]

The requirement for affordable housing highlights a central tension in the conversion boom: without mandates, adaptive reuse overwhelmingly produces luxury apartments. Because conversion costs are so high, developers naturally target the upper end of the rental market to recoup their investment. Housing advocates argue that public subsidies must be strictly tied to affordability requirements, lest cities spend taxpayer dollars to build housing that the average resident cannot afford.[4][8]

Recent data suggests that altering the type of housing produced can stretch those public dollars significantly further. Research from The Pew Charitable Trusts indicates that converting obsolete offices into "co-living" apartments—where residents have private bedrooms but share kitchens and living spaces—reduces construction costs by 25 to 35 percent compared to traditional conversions. More importantly, because the per-unit cost is lower, public subsidies go much further.[3]

According to Pew's analysis across ten major cities, utilizing the co-living model allows policymakers to house nearly four times as many residents for the same affordable housing budget compared to subsidizing traditional studio apartments. In cities like Seattle and Chicago, this multiplier effect offers a highly efficient mechanism for local governments to maximize the impact of their limited housing funds.[3]

Beyond the economic and social metrics, the environmental case for adaptive reuse is overwhelmingly strong. The NBER study highlights that rehabilitating an existing building produces 50 to 75 percent fewer carbon emissions than demolishing it and constructing a new residential tower from scratch. By preserving the concrete and steel superstructure, cities can add density without the massive carbon penalty associated with ground-up development.[2]

Ultimately, the evidence suggests that office-to-residential conversions are not a silver bullet for the national housing shortage. The physical limitations of existing commercial real estate mean that adaptive reuse will only ever account for a fraction of the millions of homes the country needs. However, as a targeted strategy to revitalize hollowed-out commercial districts, reduce carbon emissions, and generate localized housing supply, it has proven to be a highly effective tool when backed by the right policy incentives.[4][8]