Before the COVID pandemic, millions of Americans griped about living at the office.

It was an exxageration, though not necessarily much of one. Now, in a growing number of cities, they have a chance to do so for real, 24 hours a day with all the comforts of (an urban) home, rather than the mere 12 to 16 that might have been common circa 2019.

After years of powering through lengthy permitting and zoning processes, followed by complicated construction projects, developers are beginning to manifest at scale the post-pandemic dream of turning empty offices and cubicles in once-bustling professional districts into apartments and condos.

This week, for instance, marked the completion of the very first office-to-residential (OTR) conversion in Chicago’s downtown Loop financial district, bringing 117 new apartment units to the area. Five more buildings have already been earmarked for a similar makeover. Meanwhile, 38% of all new housing units in New York City are the product of conversion projects this year, according to a recent analysis of city data by The New York Times, nearly doubling the pace set the previous year and well above the single-digit pre-pandemic norm.

Backers hope such conversions will make a dent in the twin 21st-century crises of urban real estate: a glut of office buildings due in large part to the rise of remote work, and a shortage of housing due to a decades-long failure to construct new residential buildings.

Solving the problem altogether is another matter, however. Experts told The Daily Upside that the relative gold rush may soon come to an end, as cities simply run out of viable conversion candidates.

“A pattern we’re seeing is that the market is conflating ‘vacant’ with ‘convertible,’” Chris Mitchell, senior banking official at Northern Trust Wealth Management, told The Daily Upside. “In reality, structural constraints and capital requirements narrow the pool to a fraction of total inventory. Even when conversions are possible, they’re highly selective.”

The Urban Circle of Life

While the office-to-residential conversion rush is real, it is hardly a new concept. Particularly in New York City, it’s practically a part of any block’s natural life cycle. The 1980s delivered a generational office-building boom, capped by a recession that prompted city officials to encourage conversions via a tax incentive program in the 1990s. A short decade later, the global financial crisis prompted another round of office space rethinks.

“I often joke around that we were doing conversions before it was the cool thing to do,” Spencer Levine, president of NYC-based residential real estate developer RAL Companies, told The Daily Upside of the company’s decades-long history of conversion projects.

The energy driving such projects is different today than in the late 1990s and early 2000s, however.

Now, “it is a quantity game,” Levine said. “A lot of the conversions that are taking place now are about how many units can we fit in a building, rather than what is the quality of life or quality of unit that is being provided.”

The Big Short

COVID changed office culture, maybe forever. Whether JPMorgan Chase CEO Jamie Dimon likes it or not, remote work is seemingly here to stay and has arrived at an equilibrium in recent years. About 26% of paid, full-time workdays in the US were completed from home in July, according to a monthly survey run by economists Jose Maria Barrero, Nicholas Bloom and Steven Davis. That figure is down from a peak of about 30% in 2022, but has held nearly constant for two years and is well above the 7% norm recorded pre-pandemic.

Conversely, office occupancy rates remain sharply lower than in pre-covid days. The vacancy rate across 79 mostly urban US markets reached a record 21% earlier this year, according to Moody’s data, well above the pre-pandemic norm of about 16%.

As a result, building owners have seen property values swoon. One tower in Chicago’s Loop district sold for $4.2 million in October of last year, well down from the $68 million it last sold for in 2016, according to CoStar data. A 23-story office building at 135 West 50th Street in midtown Manhattan that sold for $332 million in 2006 brought in just $8.5 million in 2024.

The industry may still be finding its bottom. In the first two months of the year, sales of distressed office buildings reached $808 million nationwide, up nearly 25% year over year, according to MSCI data.

City of Yes

But where one industry sees crisis, another sees opportunity. Most major metropolitan cities have dealt with a pernicious and intensifying housing crisis this decade; rents in some major metropolitan areas, such as New York City and Miami, have increased 50% in the past five years.

Cities have rushed to create a positive from the two negatives, often offering generous tax incentives and cutting red tape to entice and expedite office-to-residential conversion projects. New York City, for example, has permitted enough conversions to create 19,700 new homes in the past three years, surpassing the entire count permitted via conversions from 2010 to 2022, according to the NYT. The wave coincided with the city’s sweeping “City of Yes” zoning reforms, as well as the introduction of a special tax incentive for conversions, known as Section 467-m, that included a certain stock of affordable housing units. For developers, the incentives are sometimes just the cherry on top of already good economics.

“The degree to which a conversion depends on 467-m or other tax incentives really varies by project. I wouldn’t say these projects universally depend on the incentive,” Mitchell said. “We have seen conversions that made economic sense based on the acquisition basis, residential values and underlying building characteristics without relying on a tax benefit.”

Of course, not every municipality has been as game as The Big Apple. Amwar Alam, a senior structural engineer at West Coast-based Alpha Structuring, told The Daily Upside that one conversion project has been on hold for years as permits for simple sea wall repairs have been held up by state regulators.

Extreme Office Makeover

Still, in New York at least, the conversion push has opened up buildings that may not previously have been considered strong candidates. Residential buildings have different needs than office buildings, requiring far more complex plumbing and HVAC infrastructure, different elevator and core stairwell configurations, and, of course, far more access to light and air. In other words, yesterday’s trendy wide-open office floor plans can be a bit of a nightmare for today’s office-to-residential conversion landscape.

“For years, I’ve been arguing that not every building is a perfect conversion building. Many of the buildings being offered for conversion now are compromised in one way or another and require substantial lift,” Levine said. “There are many opportunities that we have let pass over the last five or so years because the work that it would require and the cost of that work to deliver a quality conversion just doesn’t merit the effort.”

Meanwhile, as welcome as any new units may be to prospective renters, the simple math says office-to-residential conversions represent a mere drop in the bucket for most cities’ housing shortages. According to one McKinsey study, even if all excess office space transitioned to housing, it’d only increase the home stock in “superstar cities” by 3%. New York City, with its nearly 20,000 conversion units in development, recently said it will need 700,000 new units in the next decade to accommodate residential housing demand.

Which explains why a study this year from the New York City Rent Guidelines Board shows half of Big Apple residents spend 30% or more of their income on housing costs. And why Manhattan studio apartments with a few hundred square feet of space that rented for about $2,000 a month in 2010 now go for about $3,500.

So for now, people still working in the borough’s office towers (city officials hope their number will grow) face a choice between paying up and strapping in for a longer commute.