This guide addresses the following questions about adaptive reuse:
What is the definition of adaptive reuse?
Why is adaptive reuse on the rise?
What are the challenges around adaptive reuse?
What are examples of adaptive reuse conversions?
Major adaptive reuse projects
What is adaptive reuse?
Adaptive reuse is the process of transforming a pre-existing building for a new purpose. This typically involves converting older buildings that have exceeded their previous use into new structures that can help fulfill the current housing or business needs of a neighborhood.
Adaptive reuse usually involves converting a space that was originally built for one sector — such as office — into a building for use by another sector — such as multifamily housing. In addition to converting older buildings for a new use, adaptive reuse may also involve preserving and renovating historic structures.
Why is adaptive reuse on the rise?
The pandemic has brought about substantial changes to the way people work and live, causing many downtowns to evaluate what asset classes would be most beneficial for the neighborhood and its residents.
For the office sector, the rise of hybrid and remote work has caused a shift in the need for office space, with many regions experiencing soaring vacancy rates. CBRE found that the U.S. office sector reached a vacancy rate of 17.8% by Q1 2023, with the company anticipating that by Q3 2024, it will reach between 19.3% and 21.4%.
The rise of e-commerce and the significant number of brick-and-mortar shops that shuttered during the pandemic is also causing cities to rethink how their shops could be better utilized.
Given these declines, many cities turned to adaptive reuse to provide a more cost-effective way — compared to ground-up construction — to transform vacant spaces into much-needed assets, such as housing.
Additionally, with the increased focus on environmental, social and governance initiatives, developers have been drawn to how adaptive reuse can encourage more sustainable building practices. According to Trade & Industry Development, the cost of revamping an existing building is reduced by 16%, while the amount of time is cut by 18% as compared to ground-up construction. Additionally, adaptive reuse projects mitigate the environmental impact by incorporating building materials that can be reused, thereby cutting down on the amount of carbon let out into the air.
What are some challenges with adaptive reuse?
Depending on the city or community, some properties may encounter challenges with zoning regulations while on their adaptive reuse journey, as a particular area may only be zoned for a specific type of property. Developers would have to consult with each municipality to determine what types of adaptive reuse is allowed.
Because these buildings were initially constructed with a different purpose in mind, there may be structural elements, such as the infrastructure or floor layout, that would need to be adjusted for the building’s new use. These renovations could drive up the costs of the project.
Additionally, when working with older buildings, developers have to check for the presence of harmful materials that were used in the build, such as asbestos, lead paint or mold and clear them out prior to retrofitting the building.
In Dec. 2022, RentCafe found that throughout 2020-2021, the amount of office-to-multifamily conversions rose by 43% in relation to 2018-2019. These conversions turn vacant office spaces into much-needed housing, while helping to infuse more activity into downtown areas.
In certain regions, because the property has been zoned for office, the zoning may need to be changed, an undertaking that can take six or more months, depending on the location. According to Tolj Commercial Real Estate, rezoning can cost up to $5K in certain areas for properties that encompass 20-25 acres.
Additionally, some office spaces, as they currently exist, may not make for a seamless conversion into multifamily housing. Developers have to consider whether the building has enough windows or natural light, or space to accommodate several individual kitchens, bathrooms and bedrooms, all of which can drive up costs.
Many office tenants have been gravitating toward Class-A properties and as a result, older office buildings have been sitting empty. Urban Land Institute said that as of May 2023, 125 adaptive reuse office projects are taking place, with half being transformed into life sciences spaces. These spaces help meet the demand for labs and to help initiate more research and innovation in the field.
While office-to-lab conversions are on the rise, there are several challenges developers need to overcome. In order for a lab to run smoothly, the space needs to have the proper infrastructure to support complex equipment. According to Building Design + Construction, while each square foot of office may only require approximately 12-14 watts of electricity, a lab would need about 12-29 watts. Additionally, because lab equipment weighs more than office equipment, it’s essential to ensure that the floor is sturdy enough to bear the weight and that there is substantial space from the top of one floor to the top of the one above it to make space for writing and ducts in the ceiling. There also needs to be loading docks at the lab to transport large equipment.
While the tourism industry struggled during the pandemic, one solution was to turn hotels into apartments as a way to bring about more needed housing options.
Some neighborhoods may experience hurdles if the property is not currently zoned for multifamily, and the process for zoning can slow down the process of the conversion. Additionally, as multifamily units may require more parking spaces than hotels, the area would need to make room for a substantial amount of parking spots.
Major Adaptive Reuse Projects:
New York, New York: 25 Water Street
25 Water Street is an office-to-residential adaptive reuse project. The building consists of 22 stories and 1,300 multifamily units, and used to house both JP Morgan Chase and the Daily News. The development will gradually be available for lease within the next 3-5 years and will cost over $800M for the revitalization.
New York, New York: Hilton
A Hilton hotel in close proximity to John F. Kennedy International Airport is being converted into 318 affordable housing units, with approximately 60% being allocated toward people who are in need of homes and the remaining 40% toward those who are classified as low-income. The project aims to rework hotels that haven’t been gaining momentum while bringing forth housing for eligible New York City residents.
East Austin, Texas: Fifth and Tillery
Fifth and Tillery is a three-story industrial-to-office project that transformed a warehouse into an innovative Class-A office property in Austin. The development contains sustainable features such as solar panels, access to natural light, ample open space and a parking lot with 500 spots. The building is positioned in close proximity to dining and bars.
Washington, D.C.: Denrike Building
The Denrike Building — which encompasses more than 11 stories of office space in Downtown D.C.— is a historic building that is set to be transformed into a multifamily property. It will encompass 89 units as well as 4,081 SF of retail space on the bottom.
Redwood City, California: Redwood Life
Redwood Life is a mixed-use life sciences development initiated by Longfellow Real Estate Partners. It encompasses approximately 1M SF and 20 Class A life sciences properties. In addition to labs, it will also incorporate an amenity facility that houses a gym, spaces to hold meetings and trainings and a dining area.
Jersey City, New Jersey: 95 Greene Street
95 Greene Street is a life sciences property bought by Thor Equities that once housed Colgate Palmolive’s manufacturing space as well as Merrill Lynch. The 340K SF property, which began to bring forth spaces in October 2021, consists of eight floors as well as a ground floor, with spaces created for life sciences research and development.
Bisnow Top Stories
Denver is exploring adaptive reuse projects for buildings built between the 1960s and 1990s.
The Dallas-Fort Worth region is experiencing a greater demand for lab spaces. A few companies are looking into creating labs to bring more life sciences opportunities into the region while addressing the lack of office occupancy.
At the Bisnow panel “Atlanta Adaptive Reuse & Repositioning”, panelists discussed how bringing local businesses into adaptive reuse spaces and bringing down rent price would help with not driving up the property costs in the area. This would bring relief to residents, who may be worried about being priced out of the area.
At Bisnow’s Houston State of the Market, developers showed an increased interest in adaptive reuse. However, developers need to be mindful of challenges such as construction costs, increasing interest rates and the need for more guidance to get these projects in place.
Developers of buildings in the suburbs outside of Dallas have been exploring opportunities for adaptive reuse to revitalize their respective communities.
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