Index Shows 1 In 6 U.S. Office Buildings Are Strong Candidates For Residential Conversion

As high office vacancy rates drive developers to look for alternate uses, a new index shows less than 1 in 6 buildings across the country are quality candidates for residential conversion.

More than 1.2B SF of office buildings were strong candidates to become residential space, according to the Conversion Feasibility Index from CommercialEdge, which is part of California-based property management software company Yardi Systems.

That’s less than 15% of the nation’s existing stock, and just 2.7% of those buildings were deemed top candidates for conversion. The other 12.1% were classified as having strong potential but would likely need modifications.

Manhattan led U.S. markets with more than 53% of its existing office stock deemed quality candidates. San Francisco, at 25.8%, and Los Angeles, at 24.7%, were the only other markets within 30 percentage points of Manhattan.

Doug Ressler, manager of business intelligence at Yardi, told the Dallas Business Journal the CFI looks at the physical characteristics of an office building as well as its location and age to determine scores.

"You’re starting to see the number of potential conversions ratcheting up," Ressler told the outlet. "[It] gives a sense of validation to the fact that, if you’re a mayor of a major gateway city and you don’t have potential property revenue coming in, what do you do with this building?"

Government officials in cities like New York City; Washington, D.C.; San Francisco and Chicago are offering incentives and programs to accelerate conversions, per CommercialEdge. 

Meanwhile, a RentCafe report from earlier this year found the number of office buildings undergoing residential conversions topped 55,000 across the country, more than four times the 12,100 that were under construction in 2021. 

Yet conversion projects aren’t widespread across the country.

MJW Investments President Mark Weinstein said most office buildings don't have layouts or windows that would make conversions easy during a Los Angeles Bisnow event earlier this year. With residential vacancy at a 50-year low in NYC, owners of Class-B and C office buildings are weighing residential conversion against future office demand and potential future incentives to make the move financially easier.

With more than 85% of buildings deemed “more difficult” for conversion by the index, demolition of vacant office buildings could be easier than development. But Ressler said that's not a remedy for every building in the index’s lowest tier.

"If you demolish, which is a cost, then you have to look at the next steps,” he told the DBJ. “Am I building an economic demand center in that location? Unless you have that planned out, demolition is maybe the first step but it [might be] the wrong step."

Market pricing and office values still play an important role in determining whether a conversion is viable. CommercialEdge reported office sales had surpassed $17B at the end of July, with properties going for an average of $173 per SF. Average office sale prices have been down 40% since 2021 and more than 25% of buildings sold in 2024 were purchased at a discount. 

The overall office market remains set at a vacancy rate record of 20.1% as of Q2, per data from Moody's Analytics — the first time the firm recorded a national vacancy rate higher than 20% in its history of tracking the market. Previous prepandemic peaks saw the office vacancy rate hit 19.3% in 1986 and 1991.