'Flexible co-living' could help bring down office-conversion costs and add housing supply, new study says

• A study finds that dorm-style housing could be an efficient path to convert vacant office space.
• Conversions to apartments are often costly and can face regulatory barriers.
• The study comes as office vacancies rise and housing supply remains constrained.

Conversion to housing is often touted as a solution to the problems facing the office sector, and a new study points to a more efficient way to pull off such overhauls, which are usually costly and difficult.

"Flexible co-living," or dormitory-style apartments where residents share kitchen, bathroom, laundry and living spaces, could be a more efficient path to converting unused space, according to a study published Tuesday by the Pew Charitable Trusts and design firm Gensler

It's "an innovative approach to the office-to-residential conversion market—one that is scalable and poised to facilitate meaningful, long-term transformation in these cities and the lives of its residents," said Wes LeBlanc, Principal and Strategy Director at Gensler.

The report comes as companies reevaluate their need for office space in the wake of the COVID-19 pandemic. With many workers still remote or in hybrid positions, office vacancies have climbed. The national office vacancy rate is set to rise to around 20% by the end of this year, according to commercial real estate firm CBRE.

At the same time, the US faces a housing supply problem, with the country short between 2.3 million and 6.5 million units, according to Realtor.com data. As a result, a record 50% of renters are cost-burdened, or spend more than 30% of their income on rent, the new report says.

Office-to-residential conversions have been touted as a solution to problems in both commercial and residential markets, but such overhauls are often costly and complicated.

Some architects have cut holes in the middle of skyscrapers to bring in more light, but such huge redevelopment, plus the high costs of plumbing and electrical system makeovers, comes at a huge cost. That might be justified for luxury units, but less so for more affordable housing.

The firms' study says dorm-style renovations would be far cheaper and more feasible. They suggest a setup with furnished, dorm-style apartments on the perimeter of floors to maximize natural light and ensure each unit has a window. Shared spaces, meanwhile, will cover the middle of each floor.

They say such a setup would lower construction costs by 25%-35% compared to traditional office conversions, which would allow for lower rents that would be affordable for those earning well below the area's median income.

The report suggests this setup looks especially promising in three cities—Denver, Minneapolis and Seattle— where soaring office vacancy rates, high median rents, and minimal local regulatory barriers provide an ideal backdrop for office conversions to co-living spaces.

In an example mapped out for Seattle, where the downtown office vacancy rates average 30%, the study propsed a 120 square foot unit outfitted with a bed, desk, microwave, and refrigerator. (The typical studio in Seattle is more than three times that size at 440 square feet.)

Such a model would cost renters around $1,000 per month, or $700 each for a double room, while a typical studio apartment in downtown Seattle rented for approximately $1,530 per month as of August 2024.

The study's authors say this type of housing could reinvigorate downtown areas plagued by empty office buildings, the experts say.

"Cities across the country are facing two major challenges: a severe housing shortage and empty office buildings. This is a win-win," said Alex Horowitz, project director at Pew's housing policy initiative. "Housing is now the largest expense for families. All Americans, particularly underserved communities, need the opportunity to secure homes they can afford."

The report comes as the number of office spaces set for residential conversions is on the rise, up to 55,000 this year. That marks a 357% increase from 2021, according to Yardi Matrix data.