Looking To Make Adaptive Reuse Projects Pencil In Today’s Market? Start By Uncovering The Unknowns

The trend of converting existing buildings to alternative uses has been on the rise for the past 20 years. But in 2024, it is projected to break records. 

It is estimated that more than 150,000 apartment unit conversions are taking place across the U.S. this year. About 38% of these units are being converted from obsolete office space — four times the 2021 figure. Hotel space is also a sector that is witnessing an abundance of conversions to multifamily or mixed-use, accounting for 24% of all projects. Other creative options for adaptive reuse developments include office to industrial space and retail to mixed-use or education facilities. 

But where does this uptick in adaptive reuse development stem from, and is it sustainable? How is this sector evolving to meet the needs of today’s commercial real estate market?

According to Tony Reuter, construction manager at Denver-based Saunders Construction, a combination of factors, including an emphasis on sustainability and elevated vacancy rates, is driving a shift toward adaptive reuse development.

“Many of these projects are driven by the increased focus on sustainably built projects,” Reuter said. “Adaptive reuse developments involve lower embodied carbon as opposed to new construction as well as the need for fewer building materials.”

Reuter said record-high vacancy rates, especially in the office sector, have presented deals on purchases. The national office vacancy rate stands at 18.8%, a 2.1% increase year-over-year — signaling turmoil in the sector. 

Nearly $930B worth of commercial loans are coming due in 2024, with 25% from the office sector alone. Some experts predict that this may plunge commercial real estate into murky waters. This trend is already being seen in reduced transaction prices, allowing developers to come in to transform these buildings, Reuter said.

From a construction standpoint, these projects may provide scheduling and cost reductions. Construction material costs have risen nearly 40% since 2020, so some developers may view these projects as a win-win opportunity to save on costs while bringing life back into an old structure. 

“These projects are meticulously planned to be able to reuse as much as you can of what's already there, whether it’s from the structure itself, the facade or sometimes even mechanical and electrical equipment,” Reuter said. “Land availability in urban and suburban areas is also becoming more scarce, so that’s another reason adaptive reuse is taking off.”

Developers should look at these types of projects through a different lens than ground-up construction, he said. Given that there is an existing structure on the property, key considerations for adaptive reuse conversions may include different approaches in logistics and sequencing, taking advanced safety precautions based on existing conditions, identifying differences in the new use versus the old, or working with municipalities and service providers to get utilities up to code.

“Office-to-residential conversions are a very popular topic right now, and on top of other factors to take into consideration, they often face challenges due to their floor plate sizes,” he said. “An office program is much different than a residential program, so taking this into account before penciling a deal is important.”

The biggest challenge these projects face? Uncovering the unknowns, Reuter said. 

Prior to construction, conducting a contaminated material or asbestos survey is imperative to the process. On each project, the Saunders team evaluates the existing structure and how its mechanical systems work to see how these systems overlay with the new build. Jurisdictional elements such as historic property distinction or community sentiment also influence the conversion, he said.

“If these components are not properly identified ahead of time, they may cause unexpected costs or delays midproject,” Reuter said. 

The Saunders team has been actively involved in the adaptive reuse scene across the West, specifically in Colorado. One project the team recently completed in the heart of Boulder, Boulder 29, involved the conversion of a 160K SF former Macy’s department store into Class-A office and retail space.

“At Boulder 29, the entire exterior facade was removed and the structure was enhanced by adding a third story,” Reuter said. “The dimensions and locations of the existing structure were largely unknown, so our team came in and leveraged some of the most advanced scanning technology to understand every nuance of this building from a structural perspective. This saved the project months in overall duration.”

In Aurora, Colorado, the team worked on a project at the University of Colorado Anschutz medical campus. Saunders was brought in on this design-build project to help construct a new public safety center that aligned with the university’s safety needs. 

“For this project, we converted an old military lab on campus into a new net-zero public safety facility,” Reuter said. “It’s now a 26K SF space for all public safety needs and is the campus’s first net-zero building.”  

Reuter predicts the number of adaptive reuse projects in the national pipeline won’t slow down anytime soon. 

In Denver, this rings particularly true, as Mayor Mike Johnston just announced a plan to expand the city’s Downtown Development Authority and invest $500M into the redevelopment of underutilized downtown buildings. The goal is to create a city center that people can live, work and play in, and this plan may be the differentiator that adaptive reuse developers in the area are looking for, Reuter said.  

“There's definitely a greater interest for both private and public customers and property owners and developers in this type of product,” he said. “People want to restore these older buildings to keep their charm and restore their glory. They’re often in prime locations, but sometimes, due to their complex nature, they can be expensive. I think we’ll see more investment/incentive plans throughout the country for these projects like Mayor Johnston’s plan for Denver.”  

This article was produced in collaboration between Saunders Construction and Studio B. Bisnow news staff was not involved in the production of this content.

Studio B is Bisnow’s in-house content and design studio. To learn more about how Studio B can help your team, reach out to studio@bisnow.com.