The concept of transforming vacant office buildings in cities across the country into shared-living style apartments is gaining support as a way to ease a shortage of cost-effective housing and revitalize downtown business districts.
Architecture firm Gensler and public policy nonprofit Pew Charitable Trusts say Washington, D.C., and Chicago can benefit from converting empty office towers into multifamily housing. The apartments would consist of private, single-occupancy micro-unit bedrooms set around shared common space, typically offering a kitchen, laundry, bathrooms, and sometimes a living room. Some existing coliving units in D.C. can accommodate as many as six people all living together.
Both urban areas have grappled with rising housing costs as their office inventories remain underutilized, an aftereffect of the COVID-19 pandemic and workplace flight-to-quality trends, according to findings released jointly Monday by Gensler and Pew. While not widespread yet nationally, coliving is seen as one way to help remedy those challenges by providing thousands of more affordable units to downtowns fairly quickly and economically.
The findings add a new twist to coliving, a trend that gained some popularity before slowing in the pandemic, and the post-pandemic move by some cities to encourage the conversion of outdated office buildings into residences. At least 16.4% of office space in Chicago stands vacant as of the second quarter, while the office vacancy rate in metropolitan Washington is at an all-time high of 17%, both higher than the national level of 13.9%, according to CoStar analytics.
“We believe that there is a much deeper market for a number of these types of projects,” Wes LeBlanc, a principal at Gensler, told CoStar News in an interview, emphasizing micro-units are a part of the bigger solution to shift commercial heavy downtowns toward becoming more mixed-use and viable all day and year-round.
One of the biggest barriers to traditional conversions has been the high cost, an obstacle industry professionals say can require hefty financial subsidies to help them advance.
Even so, coliving projects have an opportunity to prove profitable more easily by leveraging the systems and utilizing plumbing and other elements in existing office buildings, reducing construction costs per square foot by about 25% to 35% compared to conventional office-to-residential conversions, LeBlanc said.
Latest regions examined
Over the past few months, Gensler and Pew have released findings covering other parts of the country they say would benefit from converting empty offices to coliving: Denver, Seattle, Minneapolis, Houston, and Los Angeles. LeBlanc said his team plans to next study whether such projects would fit in Albuquerque and Santa Fe in New Mexico. The efforts are also taking place beyond the United States, with plans unfolding in London.
The cost burden for living in cities with higher costs, such as Chicago or Washington, can be prohibitive for those looking for housing. But expanding coliving options, housing that's often furnished, with flexible lease terms and with utilities included, are said to offer a more accessible price point for renters in core areas of cities.
“This is for a variety of different demographics, a variety of different people,” a Pew senior officer, Tushar Kansal, told CoStar News in an interview. “It can be service workers; it can be college students; it can be for seniors on fixed incomes; it can be for new arrivals in a city; it can be for young professionals in their 20s who want to save on rent,” he said.
Some analyses find that advancing even just conventional office-to-residential conversions is not an easy task.
Gensler also was involved in a separate Brookings Institution report released in March that contended conversion activity has been slowed in some markets because the projects collide with zoning constraints. That previous analysis added that a lack of consensus on the problem local governments are trying to solve through conversions, as well as a shortage of accurate, publicly accessible data about what’s happening with respect to office vacancies, further complicates matters.
Washington’s goal
The joint findings from Gensler and Pew point to how turning vacant office buildings into micro-apartments in Washington would be promising given a lack of significant local regulatory barriers that can prohibit flexible coliving.
D.C. Mayor Muriel Bowser set a goal last year to add 15,000 residents downtown by 2028.
Several steps have already been taken in the past year in the District toward achieving that, including incentivizing conversions of empty office buildings to apartments. Last year, the city kicked off a tax abatement program to encourage the transformations, and earlier this year, reallowed office properties set to be converted to multifamily buildings to be classified as residential as soon as work gets underway, thereby lowering the rate they’re taxed at.
Meanwhile, as the U.S. government accelerates its plan to slim down its real estate portfolio, some in the commercial real estate industry are advocating for grandiose federal buildings to be turned into housing.
Some coliving accommodations already exist in the District, including with provider Nest DC or Oslo offering up to six bedrooms. Other ground-up coliving opportunities are set to pop up.
Even outside D.C. proper, local governments in the metropolitan area have been supporting the conversion projects, from Maryland to Virginia.
Chicago conversions
Chicago’s efforts to foster conversions of unwanted office space to affordable housing thus far have focused on traditional apartments rather than coliving configurations.
After the negative effects of COVID-19 on a number of older office towers in the Loop business district, then-Mayor Lori Lightfoot publicly invited developers to submit proposals for conversions, with city dollars available on projects in which at least 30% of the created units have below-market, relatively affordable rents.
Lightfoot’s successor, Brandon Johnson, has tweaked and continued the initiative.
The first such project recently began at 79 W. Monroe St., where local developer R2 and the billionaire family that controls the Campari spirits giant are reshaping eight of the historic building’s 14 floors into 117 apartments. Chicago’s City Council last year approved $28 million in tax increment financing to back the project, which will create 41 affordable units.
It is the pilot project in a broader city program designed to simultaneously reduce the stock of outdated office space on and around LaSalle Street while addressing a dearth of affordable housing downtown.
Larger projects, including partial conversions of the 21-story Chicago landmark at 208 S. LaSalle, the 23-story building at 111 W. Monroe St., the 45-story tower at 135 S. LaSalle, and the 43-story structure at 30 N. LaSalle, are in the works.
LaSalle is Chicago’s longtime financial center, but this street known for its so-called canyon of skyscrapers in recent years has lost major tenants such as Bank of America and BMO Financial to new trophy towers along the Chicago River and farther west in Fulton Market.
Some ground-up coliving options do exist in Chicago, including Straits Row at 633 S La Salle St. Q Investment Partners and Melrose Ascension Capital said earlier this year that leasing began at that 18-story tower.
“The vision of Straits Row was to create a vibrant community that meets the needs of Chicago’s diverse workforce and student populations by offering modern, furnished and amenity-rich apartments in a prime downtown location with historical character, offering high quality with exceptional value for Chicagoans who are often priced out of other luxury developments,” Nick Melrose, founder and chief executive officer of Melrose Ascension Capital, said on LinkedIn.