When it comes to the debate over whether or not to convert from traditional office space to multifamily condo/apartment space, one only need to look at the growing trends and cold hard facts to decide.
According to the statistics, markets across the country are seeing the trend of having a surplus of vacant office space, with vacancy rates of up to 25%, while at the same time having a need for available apartment living space because their apartment vacancy rates are hovering around as low as 2.6%, in some markets.
Due to this upside down tendency, smart commercial property owners and investors are looking to balance not only vacancy rates, but to serve a public need that has the ability to add some serious capital to the bottom-line.
As a matter of fact, one such firm in Connecticut has already completed more than a half a dozen office-to-residence conversions in the downtown Hartford area. These conversions are responsible for adding 1,120 apartment units to the busy area and a combined development value of more than $276 million for its investors.
So why are these conversions such a good bet?
In our current market, we find that there are several factors that support the idea of converting office space into multifamily living space. For starters, the fact that so many have chosen to set up home offices is taking a toll on the office space inventory.
In addition, we see that, demographically speaking, there is a huge influx of retiree’s looking to downsize, while at the same time, we have a growing market of young renters who are not yet in the position to purchase property. Now add to this the fact that there have been so many homeowners displaced after the recent foreclosure crisis and you can see that the potential renter market is busting at the seams.
Another element that’s playing a factor in these markets is the recent improvement in the current job market and the added transportation costs due to rising fuel prices. The upswing in job creation and the high cost of fuel is causing those that once chose to live in suburban areas to move into more urban areas that are both closer to their new jobs and possible public transportation.
What does all this mean to investors looking to convert their office space?
For starters, this means that investors who have existing office space that they are looking to convert or those investors looking to acquire office space in markets where the over abundance of inventory has driven the prices down will have a deep pool of potential renters for their newly converted units.
Also, because the trends are showing that the public is migrating towards a more urban area, the smart investor will focus their conversions on the cities where job growth is biggest. This way the converted units will be in position to attract not only the most viable renters, but the ones that will have the ability to pay the most rents.
Finally, while looking at these markets and the fact that the single family market itself has been through so much in recent years, this pool of renters are going to continue to flow for at least the next few years, while the rest of the real estate market begins to bounce back.
Rentlytics provides deep analytics for apartment property owners and managers. Through Rentlytics, stakeholders can view and analyze their property operational and financial metrics more effectively and identify issues more quickly through our Apartment Intelligence platform, resulting in increased revenue and reduced expenses at each property across your entire portfolio. Connect with us in our LinkedIn Group Multifamily Data Experts or email us at email@example.com for a demo.
Categories: RE Trends/Data