Too many cubicles, too few homes spur incentives to convert offices to housing

Predictable zoning rules are important to developers who don’t want to get bogged down in negotiations and refusals that could sink a project.

“Developers just urge their states and localities to be really transparent, streamline the process, make the unknowns limited, because it’s the unknowns that drive risks,” said Julie Whelan, a vice president at CBRE. “Otherwise, they’re going to go look at the next pasture.”

Incentive programs

In addition to the Ohio cities, Chicago; Dallas/Fort Worth; Houston; Hartford and Fairfield County in Connecticut; the Kansas City metro area; Louisville, Kentucky; Minneapolis/St. Paul; Pittsburgh; Milwaukee; New Jersey; and Washington, D.C., are on CBRE’s top 15 list for rate of office space converted to apartments.

Ohio has two incentive programs for office conversion to housing. A 2020 program for“transformational” projects that could spur further development helped convert four floors of offices to apartments under construction at Playhouse Square in Cleveland. A historic building preservation incentive in place since 2007 helped partly convert Carew Tower in Cincinnati to apartments, said Mason Waldvogel, a spokesperson for the Ohio Department of Development.

Missouri is hoping to replicate that success in St. Louis, where about a quarter of the commercial space, including offices, is vacant. That includes the massive 44-story One AT&T Building downtown, with almost 1.5 million square feet, that sold for $3.6 million this month, compared with $205 million in 2006.

Missouri state Sen. Steven Roberts, a Democrat who represents the downtown St. Louis area, said a bill he’s sponsoring has bipartisan support from suburban Republicans, and is aimed at creating downtown areas in St. Louis and elsewhere where people can live, shop and eat as well as work. The bill was voted out of committee in February and is awaiting consideration by the full Senate.

The bill would create a state tax credit for up to 30% of the cost of converting office space to housing, retail or other uses.

“It’s a creative workaround to make downtown more vibrant and successful. We want to get more restaurants, more stores, more nightlife — and the way to do that is to get more people living there,” said Roberts. “It’s an issue for downtown and also for the whole state.”

Other states have enacted laws to encourage more conversion of offices to housing, according to a Minneapolis Federal Reserve Bank report last year. Laws passed by Florida and Montana in 2023 allow new and converted multifamily housing in commercial areas, and laws in Rhode Island and Wisconsin support conversion of existing commercial and office buildings.

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