Adaptive Reuse Surges Again With 151K Upcoming Units; Hotel Conversions Overtake Offices in 2023

• Adaptive reuse projects are on the rise again with 17.6% more apartments converted from outdated buildings in 2023 compared to the year prior.
• While office conversions remain popular, 2023 saw a shift towards repurposed hotels, particularly in Manhattan, which now dominates the adaptive reuse landscape.
• A growing Atlanta suburb leads in office conversions, closely followed by two Midwest hubs — Milwaukee and Indianapolis.
• The staggering 151,000 apartments currently underway across the U.S., mostly from office spaces, indicate a major revival in office conversion in the upcoming years.

In 2023, the adaptive reuse of buildings into apartments rebounded strongly, approaching the high activity levels of 2019 and 2020. This uptick came as developers were quick to respond to the growing demand for housing, following a two-year slowdown. This resurgence saw the conversion of buildings into 12,713 new apartments throughout 2023 — showing a substantial 17.6% increase compared to the year before.

Moreover, this trend is expected to continue in the coming years, and our analysis of Yardi Matrix data shows that adaptive reuse apartments are poised for further growth: A whopping 151,000 rental apartments are currently in various stages of conversion, with 58,000 of those on track to be repurposed from former office spaces.

In an era dominated by environmental concerns, adaptive reuse offers a sustainable alternative to new housing construction. “The process minimizes the environmental impact associated with demolition and the production of new materials, making it an eco-friendly approach to design and construction,” said Doug Ressler, manager of business intelligence at Yardi Matrix.

But, while office conversions are the darlings of future adaptive reuse projects, it was hotel conversions that stole the show in 2023: Nationwide, more than 4,500 apartments were created through repurposing hotels. Next up are rental units transformed from former office spaces, with repurposed factories following at a great distance.

Hotel conversions account for more than one-third of adaptive reuse projects in the U.S.

It’s not news that the hotel sector has faced many challenges and undergone transformations in recent years — particularly due to the pandemic, which caused a flight to quality in the tourism sector. Unsurprisingly, outdated hotels bore the brunt of reduced traveling and steep debt service costs, prompting many owners to offload their underperforming properties.

Naturally, this created an opportunity for developers to swiftly repurpose these properties into apartment buildings, especially in places boasting a large number of hotel properties, such as New York City. And, because hotels already come equipped with essential infrastructure (such as plumbing and electrical systems), these adaptive reuse projects offer a faster and often more cost-effective method to create housing units, particularly in dense, urban areas where space for new construction is scarce or pricey.

 

To that end, adaptive reuse projects from former hotels are at an all-time high in the U.S.: A total of 4,556 apartments were created from repurposed hotels in 2023. That’s a 38.8% uptick since the previous year and almost double the volume of 2021. Interestingly, the only year to see a boom in hotel conversions pre-pandemic was 2016, when 3,061 apartments were created from such repurposing projects.

Furthermore, apartments coming to life from former hotels represented 36% of all conversion projects that were completed nationwide in 2023. The majority of these new apartments (60%) came from Class B hotels, with Class A and Class C hotels only accounting for 21% and 18%, respectively, of such conversion projects.

Not far behind, adaptive reuse projects involving outdated office buildings made up 28% of all conversions in the U.S. Specifically, in 2023, developers created 3,587 apartments from former offices. That was up 3.8% over the previous year, despite a 17% decline from 2021 and a 45% drop compared to the all-time high experienced in 2020. In this case, developers repurposed almost the same number of Class A and Class B office buildings in 2023 (13 and 12, respectively).

A ways back were conversions from outdated factories, which produced 1,954 apartments, making up 15% of the total rentals created through adaptive reuse nationwide. That’s a solid 31.6% increase year-over-year, but a far cry from the peak of 3,153 units completed in 2019.

Meanwhile, warehouses — also from the industrial realm — saw an astounding 128.8% surge in the number of apartments repurposed from such properties, totaling 1,098 units. This accounted for 9% of all conversions in the U.S. in 2023.

Manhattan leads in apartment conversions overall by completing 4 times as many units as the year before

Manhattan was at the forefront of apartment conversions in 2023, surpassing Los Angeles, which experienced a slowdown in adaptive reuse compared to the previous year.

So, with 733 apartments brought to life through adaptive reuse — all of which were from repurposed hotels — Manhattan now holds 5.8% of all converted apartments in the U.S. In fact, this iconic New York City borough stepped up its housing game and managed to create almost four times as many apartments through adaptive reuse than one year prior.

Notably, the bulk of converted apartments in Manhattan resulted from the repurposing of a former hotel building at 525 Lexington Ave. in Turtle Bay, which ceased operations in 2020, almost 100 years after it was built. Considered one of the largest hotel-to-residential conversion projects ever completed in Manhattan, the building now contains 655 apartments for students.

Richmond, VA — another city on the East Coast — followed closely with a total of 662 apartments created through adaptive reuse, which was more than triple the number of units converted here in 2022. Approximately 30% of these converted apartments (203 units, to be exact) came from transforming the historic Model Tobacco Factory at 1100 Richmond Highway, which was acquired in 2020 by a former NFL player turned real estate developer.

Next up was Alameda, CA, where developers converted 372 new apartments in 2023, all by breathing new life into a former warehouse property that’s right outside of Oakland, CA, as well as about 10 miles from San Francisco.

Interestingly, in 2023, Ohio stood out as the only state with more than one city featured in the top 10 list for apartment conversions. Specifically, Cincinnati boasted a total of 342 converted apartments, while Cleveland had 282 new units created through adaptive reuse.

It's worth mentioning here that Cleveland was the only adaptive reuse hotspot to maintain its momentum from 2022, when it saw 354 apartments created through repurposing. As a matter of fact, adaptive reuse projects have been on the rise in Cleveland since the 1970s. The city has created more than 5,000 rental units by repurposing former office buildings, hotels and warehouses in the last half century.

Repurposed hotels take center stage in Albuquerque, second only to Manhattan

In 2023, fueled by the creation of 300 apartments from former hotels, Albuquerque, NM, became a hotspot for this type of conversion, only surpassed by Manhattan.

This boom is part of the city's broader adaptive reuse initiative, which tackles housing needs and breathes new life into neglected buildings, many of which are former motels and hotels. This includes the famous Hotel Cascada off Carlisle Boulevard and Interstate 40, which now contains those 300 repurposed units.

Claiming third place for repurposed hotels in 2023 was Richmond, VA, where the 60-year-old Quality Inn & Suites in the Scott’s Addition area was repurposed into The Icon, a 291-unit apartment building.

Florida, a U.S. tourist giant with over 4,000 hotels, also made a splash in hotel conversions. In particular, two Florida cities cracked the top 10 for most converted apartments in 2023: Hialeah snagged the fourth spot with 251 units, while Ruskin (a growing suburb of Tampa) secured the 10th position with 158 conversions.

Meanwhile, Las Vegas — the undisputed king of tourism in America — also jumped on the hotel conversion bandwagon in 2023 amid a growing shortage of affordable housing, especially after the pandemic. Namely, in the heart of Sin City’s bustling Convention Corridor, a tired Red Roof Inn found new life after developers transformed its rooms into 199 modern studio apartments. This pushed Las Vegas to eighth place in our ranking.

An Atlanta suburb is at the forefront of office conversions, with 2 Midwestern hubs on its heels

Forget big-city office conversions. In 2023, a suburb of Atlanta, Peachtree Corners, took the crown with a whopping 295 apartments repurposed from a half-century-old office building at 5672 Peachtree Parkway. Here, as well, the adaptive reuse trend is part of a bigger plan to modernize the city and make it even more attractive for residents and businesses alike.

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"The adaptive reuse market does show a bifurcation between high-end and low-end markets. This is particularly evident in the commercial real estate sector, where a sizable portion of office vacancies are found in older buildings with reduced functionality and lack of modern amenities. Although these buildings pose challenges for conversion into residential spaces due to factors like building age, size, configuration, and location, repurposing them helps alleviate the shortage of rental units at diverse price points, especially in areas where vacant or underused buildings are prevalent."

Doug Ressler,

Senior Analyst & Manager of Business Intelligence, Yardi Matrix

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Next up, Milwaukee and Indianapolis were neck-and-neck for second place in terms of apartments transformed from offices in 2023. Both cities made significant strides in adaptive reuse, with each creating 216 new apartments from former office spaces.

That said, Milwaukee stood out with two notable projects completed in 2023: The historic Milwaukee Sentinel building transformed into a 141-unit apartment community, while the 120-year-old Underwriters Exchange Building in Downtown Milwaukee was reborn as 75 affordable apartments. Otherwise, 220 Meridian was the only office-to-apartment conversion project completed in Indianapolis in 2023.

Similarly, all of the remaining cities in the top 10 list for most apartments transformed in 2023 featured only one repurposed office property, including Alexandria, VA, at #4 with 212 units; Cleveland at #5 with 202 units; Rochester, NY, at #6 with 189 units; Birmingham, AL, at #7 with 177 units; Chicago at #8 with 176 units; Lansing, MI, at #9 with 172 units; and Richmond, VA, closing out the top 10 with 168 apartments repurposed from an outdated office building.

Upcoming conversions to bring more than 151K apartments nationwide, mostly from offices

When it comes to upcoming adaptive reuse projects in the U.S., it’s a back to the future (and then beyond) story. That's because Yardi Matrix data reveals a staggering 151,000 apartments currently in various stages of conversion — including approximately 40,000 already underway — that are expected to be created nationwide in future years. That’s a 24% increase from 2022’s 122,000 projected units.

Perhaps unsurprisingly, offices are leading the conversion charge. Get ready for more than 58,000 future apartments from former office buildings — a whopping 38.5% of all upcoming conversions, reflecting a growing trend. Washington, D.C., is expected to welcome the most office-to-apartment transformations, with roughly 3,000 units on the way.

Next up are repurposed hotels (22.5%), totaling about 34,000 apartments, with factory conversions following at a great distance with almost 18,000 apartments (11.8% of all future conversions).

Looking at the overall future conversions, Los Angeles is poised for a comeback in the coming years, with more than 5,800 apartments in the works, though only 1,700 will be from offices.

Manhattan, the current king of conversions, is projected to slide to second place. Future conversions in Manhattan total almost 4,400 apartments, with more than half coming to life from offices. Hot on its heels is Chicago, with an anticipated 4,100 units, and repurposed hotels contributing to half of those upcoming apartments.

Methodology

RentCafe.com is a nationwide apartment search website that enables renters to easily find apartments and houses for rent throughout the U.S. This report was compiled by the RentCafe research team based on apartment data provided by our sister company, Yardi Matrix.

For the purpose of this study, adaptive reuse refers to the process of converting an existing property for purposes other than those it was originally designated for. In cases where zoning and permitting for a site were changed to allow the construction of a new apartment building on a property previously used for a different purpose, we also counted these as conversions. These changes reflect a shift in the intended use and character of the property, aligning with the broader concept of adaptive reuse. This study is based on apartment data related to buildings containing at least 50 units.

Data is subject to change. New properties and markets may emerge, while some properties might not be completed or maintain the same status (other than completed) for several years. Additionally, various factors such as delays, sales, or project abandonment can prevent completion of some properties.

Future projects encompass those currently undergoing conversion, as well as those in the planning and prospective redevelopment stages.

Yardi Matrix defines completed buildings as those that have received a certification of occupancy, whereas those under conversion have yet to receive it or are currently being developed. Planned projects are actively engaged in the redevelopment approval process, while prospective redevelopments hold lower status in the probability of completion because they remain subject to entitlement approvals.

Correction, May 14, 2024: The second paragraph in the methodology has been updated to include references to zoning and permitting to better reflect the full criteria used to count adaptive reuse conversions.

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