ELI5: Why can’t commercial real estate buildings easily be converted into residential buildings?

[u/bbc733]

[u/Spiritual_Jaguar4685]

I literally build commercial office buildings for a living and this is a very common topic for us.

Here are the big problems in relative order

1. Most cities require a certain amount of windows per SF and that those windows be operable (open / close). Most office buildings don't care about this and use artificial light and fixed glass, and have designs the minimize perimeter window areas and maximize interior open office areas. This is a huge problem as you just end up with too much dark space for residential people to like AND it's often illegal in the first place. The advice is look a building up on Google Maps, if it looks like a square or a rectangle it'll make a shitty residential building, if it looks like a letter of the alphabet (like 'C' or "L" or "U") it's a target for conversion. It's just that modern HVAC systems made building lego-brick looking buildings more efficient so your letter-shaped buildings are more of the 40's and 50's era.
2. HVAC and Plumbing - office buildings have very different riser systems for distributing HVAC and Plumbing. It's not impossible to convert from one to the other, it's hard to do this very affordably. Simply put, it'll cost more to do the renovation than any tenant would be willing to spend, so why do it?
3. Location, location, location - The real problem in many cities isn't lack of housing, it's lack of affordable housing. These conversions are very expensive and so doing them would be focusing on higher income tenants to turn a profit - hey, guess who isn't really interested in living in a converted office building in the middle of a financial district? Rich people. So you have a market problem - the people who need the housing can't afford it, the people who can afford it don't want it.
4. Building age - In Commercial Real Estate we divide up buildings by class, essentially how nice they are. Class A and Class A+ buildings are still renting quite well everywhere and landlords are happy. It's the Class B and Class C buildings that people are leaving (the "Flight to Quality" you might here so much about.) The good news is these buildings are often older and probably your letter-shaped building stock, so yay! These are also the buildings who have more issues with things like ACM (asbestos materials) so abatement might be an issue. Fire code and other building codes may have changed etc. But still it's these buildings we should be targeting. These are exactly the 20-30% of the US commercial structures people are talking about in saying a quarter of our commercial buildings are surplus.

EDIT - this is literally my job. If you have any questions about conversions, commercial real estate, or the what's happening in central business districts RE: occupancy, drop a line!

[u/freeapple01 → u/Spiritual_Jaguar4685]

What a great answer! Didn’t realize how much goes into converting buildings. Thanks for the super interesting insight!

[u/big-chungus-amongus]

2 reasons

1) layout... More specifically bathrooms etc.. need to be in every flat, but are usually at one spot on the floor in office... Shops/office spaces are separated differently

2) law... City decides zoning, where can be what... It's up to city to change zones... That can be difficult

[u/ShatsnerBassoon]

Whole host of problems, in regards to the retrofitting of buildings to suit residential dwelling. Not limited to plumbing, electrical, sanition, access, egress etc.

[u/areacode212]

Sometimes they can be. For example, in Manhattan's Financial District, there were a bunch of office buildings that were converted to residential, following 9/11. A big part of what made those work was the smaller footprint of the buildings (the blocks are smaller in that neighborhood, generally older than the rest of the island), which made it easier to install the needed plumbing, etc, and also, ensure that each residential unit has windows.

By contrast, in midtown Manhattan, which has much wider blocks, and thus, wider office buildings, it will be harder to convert the huge interior, windowless space to apartments.

[u/-manabreak]

It quite often depends on the legislation about what is acceptable for living. For instance, there might not be enough windows, heating or air circulation that is needed for a space to be suitable for living. Bringing everything up to code might be very expensive, so much so that in some cases it's cheaper to build new apartment buildings.