How Prefabrication Can ‘De-Risk’ Office Building Conversions

Urban downtowns have undergone a transformation that few would have imagined pre-pandemic, with central business districts’ bustling streets and fully leased office buildings replaced by districts caught in doom loops.

As cities struggle with high office vacancies and other challenges, it might be time to reimagine how their underused building stock could be better utilized to support future needs. 

One increasingly popular idea completely rethinks the purpose of office high-rises. Rather than waiting for office occupancy to return to previous levels — which might not happen for many years, if ever — one possible solution is to retrofit these buildings for use as mixed-use “vertical neighborhoods.”

“This approach looks at the whole building as a 24-hour community, combining housing, businesses and other needs,” said Doug Hayden, co-founder, president and chief strategy officer of startup Arthrotó. “I believe we're the only ones that have the ability to offer that solution.”

Arthrotó, which was founded in Canada and has a wholly owned U.S. subsidiary in Dallas, seeks to help building owners convert ​​unused office spaces to higher-demand residential and other assets with prefabricated interior modules. Hayden said the firm’s approach has many advantages over conventional construction approaches, including reducing risks for building owners and helping to make their conversion projects pencil.

“The biggest opportunity is not necessarily in converting the whole building, but only a portion of it, because so many office buildings are running at 40%, 50% or 60% vacancy,” he said. “That’s a good opportunity for owners of distressed properties, or so-called zombie buildings, to bring their properties and surrounding neighborhoods back to life.” 

Hayden said conversion has been warmly received in Arthrotó’s hometown of Calgary, Alberta, which became an early convert to the idea when its downtown emptied out during a downturn in the petroleum industry, a major local source of employment.

Conversions using conventional construction methods, however, face a host of obstacles that can add to an owner or developer’s risks, ranging from a lack of skilled workers to perform the work to sustainability concerns about construction waste and emissions. 

Arthrotó’s strategic partnerships with businesses such as prefab pioneer Dirtt give it access to the expertise needed to surmount these challenges, as well as resources not typically available to a startup, Hayden said.

Dirtt co-founder Geoff Gosling said a prefab approach brings much more flexibility to a conversion project. For one thing, it allows for the cost-efficient installation of only one or a few factory-built residential units if an owner doesn't want to commit to a complete conversion of a building.

“The Dirtt solution was based on a unit of one, and you don't have to have scale for it to be meaningful,” Gosling said. “If we designed with the intent that we have to have X number of units for this to work, then this approach would never fit anywhere.”

Prefabrication can also shave 60% off a construction schedule, with new apartments being installed in a matter of days rather than weeks, he added.

Gosling said Dirtt’s emphasis on speed of installation and its adaptability to a building’s floor plan variations mesh well with Arthrotó’s approach. Hayden called it “construction without disruption” because prefabrication requires far fewer construction personnel and less equipment on-site than conventional construction.  

This less invasive approach ought to appeal to building owners who are concerned about bothering current tenants or neighbors with prolonged construction activity, said Spencer Marks, Arthrotó co-founder and chief operating officer.

“We're de-risking the execution of the conversion process by moving most of the fabrication to a controlled factory environment,” Marks said. “That means we create a consistent experience where the on-site team has to deal with fewer change orders and simpler punch lists.”

But while the prefab approach brings precision to office conversions, it doesn’t need to be a cookie-cutter approach. Gosling said residential modules can be customized at the factory to meet a building’s specific needs and can be altered after installation to adjust to changing priorities.

“A three-bedroom apartment can be converted to a two-bedroom, which can become a one-bedroom and back again,” he said. “The owner doesn’t have to worry about making sure they have the right product in the right place because their needs have changed. That is another risk that can be avoided with prefabrication.”

Eric Lieberman, executive vice president of government relations and development for Arthrotó, said prefabrication can help with another obstacle to conversion: red tape.

While local governments are alarmed by persistent office vacancies and genuinely want solutions, Lieberman said entrenched building codes and ordinances can stand in the way of conversions or favor older construction methods. He said part of Arthrotó’s mission is to communicate the relative simplicity and advantages of prefabrication.

“The CRE industry is looking for solutions to support cities, and the cities recognize the fact that they need to change things,” Lieberman said. “They all acknowledge that the regulatory environment needs to adapt and change.” 

Hayden will speak at Bisnow’s Chicago Repositioning and Conversions Summit on Wednesday. One of the messages he said he wants to convey is that local regulations need to be updated to allow building owners to take advantage of solutions such as Arthrotó’s. This is particularly the case if municipalities are serious about reducing carbon emissions and other environmental impacts.

“With prefabrication, you're converting an older building into a newer use without having to tear the building down, saving both money and the environment,” he said. “The factory-built solution is a better formula for ESG, whether you are a REIT or a large-building owner, because they're the ones that face the greatest pressure on ESG targets.”

This article was produced in collaboration between Arthrotó 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.