The residential real estate market has an inventory shortage, while commercial real estate is experiencing high vacancy rates due to shifts away from in-office mandates. The two birds with one stone solution has been to convert unused office buildings into multi-unit residential buildings. Cities such as Boston have even passed tax breaks to incentivize developers to convert offices into apartments.
In actuality, though, these conversions have not taken off in significant numbers. A new study by Pew Charitable Trusts and architecture firm Gensler investigated why and concluded that office conversions should focus on a specific type of living space.
The report was authored by Pew’s Alex Horowitz and Tushar Kansal; Horowitz, along with Gensler’s Wes LeBlanc, first presented their findings on an October 21 webinar. Their research identifies co-living spaces as a cost-effective goal for commercial space conversions that could produce positive results for communities. While the idea remains conceptual (i.e., there are no “big office to co-living” conversions ongoing, per Horowitz), the report marshals significant evidence in its support.
The “co-living spaces” outlined in the report would use dormitory style floor plans, where each floor would host microunits that surround a central communal living and dining space (the report includes floor plans drawn of these hypothetical spaces). Centralizing the plumbing system and kitchen space, the authors found, would reduce construction costs from 25% – 35%. The “narrow and deep” structure of microunits would, in theory, allow for more units to be built per building at a lower cost than even studio apartments.
A major goal of co-living spaces would be greater housing flexibility for tenants. Rents for these co-living spaces would be lower than single apartments, as would security deposits. Leases for the units could be shorter than 12 months, and would also be open to tenants using Section 8 housing vouchers (Gensler’s unit designs are specifically fashioned in accordance with HUD specifications).
While lower rents would require an investor “comfortable with a modest rate of return” and public assistance in construction (via subsidies and tax breaks), the report highlights both low construction overheads and community benefits.
Horowitz said on the webinar that co-living spaces could create a “lower rung on the housing ladder,” but one that would still be well-maintained and well-located (i.e., near jobs, transportation, etc.). This would be useful for demographics that are being priced out or squeezed tight by current rent prices: service workers, young professionals, students, veterans, retirees, etc. This additional “rung” on the housing ladder could also, the report claims, be the step up that homeless people need; as noted on the webinar and prior Pew research, homelessness in America is currently at its highest recorded rates, and housing unaffordability is a primary driver of that.
The researchers surveyed the 30 largest U.S. metro areas based on median rent, vacant office space and current regulations and found three where co-living spaces could be constructed immediately: Denver, Seattle and Minneapolis. Seattle’s Mayor Bruce Harrell has supported office-to-apartment conversions and previously proposed a new regulatory framework to ease the process in the city.
Other major cities, the report states, currently have barriers (whether commercial versus residential zoning, bans on subsidies to build co-living spaces, large minimum unit sizes and parking minimums) that impede the construction of the co-living spaces described in the report. Conversely, “Few if any changes would need to be made (in Denver, Minneapolis and Seattle) to enable this model starting tomorrow,” said LeBlanc on the webinar.
In these three metro areas, microunits in co-living spaces could be priced at about half of current median monthly rent prices (Denver: $1,781, Minneapolis: $1,387 and Seattle: $2,091), according to the researchers. This would be a particular benefit, the report states, to the over half of U.S. renter households that are currently cost-burdened (i.e., paying more than 30% of household income on rent).
The initiative could also save cities money in subsidizing housing construction; $100 million in subsidies could produce either 330 new construction studio apartments or 4,300 units in co-living spaces.
The webinar presentation was followed by a Q&A where Horowitz and LeBlanc fielded questions for attendees.
Asked about the effectiveness of co-living at reducing homelessness, due to Seattle having both the highest rate of homelessness in the three cities and the highest volume of existing co-living spaces, Horowitz stressed that Seattle’s co-living stock is only comparatively high, and so insufficient to make a dent.
“Any city that has median rents over $2,000 like Seattle does now, you will almost certainly have a high level of homelessness in that city,” he said. The current low cost of commercial buildings, he said, is why now could be the moment to give co-living renovation, and its presumed lower rents, a shot to remedy housing problems. “When rents go up, homelessness goes up.”
Another question focused not on the logistics of the construction, but the people: “Homeless residents, corporate short-term stays, elders on a fixed income, etc. …is it realistic to expect them all to co-exist together?” Horowitz said this would ultimately be “more of a management question,” but noted that this is where the different floors of the co-living spaces could be exploited. “Each floor can be its own community. Every floor doesn’t have to be for every type of resident,” he said.
When asked if Pew and Gensler had consulted with developers, LeBlanc affirmed they had and said, “There’s a general consensus this structure can work.”
For the full report, click here.
