Office to Multifamily Conversions – how attractive is this conversion strategy for Commercial Real Estate (“CRE”) investors?

Converting office space into multifamily residences is a change that could benefit both developers and residents. Office buildings that are outdated, vacant or located in areas with high residential demand could be transformed into modern and attractive apartments with many amenities and functions. The pandemic changed the way we work and live, affecting the real estate sector. As more employees work remotely or adopt hybrid models, the demand for office spaces decreases, resulting in higher vacancy and lower turnover.

As the pandemic and the shift to remote work reduce the demand for office spaces, the global rate of speculative-grade investment in office buildings rose from 2.6% in November 2021 to 2.8% in December 2021 and is projected to reach 5.1% by the end of 2023. At the same time, office property valuations in some markets fell to 45% from 28% due to declines in rents, occupancy and rentals. Tighter financial conditions also make it harder for investors to find financing or reinvest in office space. These conditions may cause some investors to move to multifamily or other desirable and profitable properties.
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RSK: This is a very risky investment in my estimation. Try to find lending for the build out, plus holding cost while it`s being worked on. You will need to buy the office building at a low price in order to make this work. Possibly, tax incentives might play a role.