Transforming underutilized structures into functional spaces offers advantages for owners, the environment, and local communities alike, adaptive reuse is gaining momentum among property owners and developers. At its heart, adaptive reuse involves repurposing existing structures for new uses, addressing challenges like housing shortages, shifting office demand, and sustainability goals. From converting office towers into multifamily housing to transforming underutilized historic buildings into boutique hotels, for developers and investors, adaptive reuse creates opportunities across sectors like multifamily, retail, and hospitality.
What Is Adaptive Reuse?
Adaptive reuse is the process of repurposing existing buildings for new uses, often transforming spaces like warehouses, factories, or office buildings into apartments, retail spaces, or cultural venues. In 2024, office conversions have surged, with 73 projects completed so far and another 30 expected by year-end, driven by high vacancy rates and declining property values. With another 250 projects totaling 71 million square feet of U.S. office space that are planned or undergoing conversion, the pipeline remains robust as cities offer incentives and property owners look to repurpose older assets.
New York City’s High Line Hotel was once a dormitory for The General Theological Seminary (constructed in 1895), and the Tate Modern in London was converted from a 1940’s power station into a world-renowned art gallery. In many cases, adaptive reuse offers a cost-effective and sustainable alternative to demolition, preserving the cultural and architectural heritage of urban environments.
The importance of adaptive reuse lies in its ability to address pressing challenges, such as urban housing shortages, environmental sustainability, and the economic revitalization of underutilized properties. By converting outdated office spaces or industrial sites into residential or mixed-use developments, cities can accommodate growing populations without sprawling into undeveloped land. Additionally, adaptive reuse significantly reduces the carbon footprint associated with new construction by minimizing waste and utilizing existing materials. As urban centers face evolving demands, adaptive reuse provides a practical and innovative solution to repurpose buildings while maintaining their historical and community significance.
Breathing New Life into Aging Office Buildings
With office vacancy rates at historic highs in cities like Los Angeles, San Francisco, and New York, adaptive reuse provides a lucrative pathway to reposition underutilized assets.
Take New York City, for example, where office-to-residential conversions are gaining momentum. Mayor Eric Adams’s City of Yes for Housing Opportunity, recently approved by the New York City Council, will loosen existing adaptive reuse regulations, allowing more underused non-residential buildings to be converted into housing. This initiative is projected to add 80,000 housing units over the next 15 years. A prime candidate is the Helmsley Building at 230 Park Avenue, a Manhattan landmark facing foreclosure despite a $100 million renovation, with its valuation plunging from $1.2 billion to $770 million. RXR Realty is considering converting portions of the building into residential units, spurred by new tax incentives offering a 90% tax reduction for such conversions below 96th Street, provided a portion of the units are affordable.
Dallas, a leader in Texas’s office-to-residential movement, exemplifies how adaptive reuse can help address the state’s significant housing shortage, with an estimated 306,000 additional homes needed to meet demand. The Santander Tower, a 50-story office building in downtown Dallas, faced high vacancy rates as tenants migrated to newer, amenity-rich spaces in areas like Uptown. In response, 14 floors of vacant office space were converted into 220 luxury apartments, blending residential, office, and retail uses. This transformation not only revitalizes the property but also supports Dallas’s push for mixed-use developments that align with modern urban living needs.
More recently, Dune Real Estate Partners and TF Cornerstone announced a $1 billion venture called Alta Residential, aimed at converting underutilized office buildings into residential properties across major U.S. cities. Targeting areas with high barriers to entry and strong transit access, such as New York City, Los Angeles, and Washington, D.C., this initiative seeks to address both the oversupply of office space and the housing shortage.
A Win for the Environment and Communities
Adaptive reuse not only brings life (and profit) into underutilized buildings, it also supports community sustainability initiatives environmental goals by reducing construction waste and preserving embodied carbon. For instance, transforming industrial warehouses into mixed-use developments allows developers to achieve green building objectives while meeting community needs.
The transformation of the historic Butler Brothers Building in St. Louis into The Victor, a mixed-use development, highlights how adaptive reuse projects can bring much-needed housing to a community while benefitting the environment. The historic structure, built in 1906, originally functioned as a warehouse distribution center. After sitting vacant for over two decades, the building was revitalized into a mixed-use development featuring 384 apartment units,15,700 square feet of retail and coworking spaces, and top-of-the-line amenities. The project not only provided much-needed additional housing to the community but also contributed to the environmental benefits by conserving the embodied carbon within the existing structure, thereby reducing the need for new construction materials.
Key Considerations for Successful Adaptive Reuse Projects
When considering adaptive reuse projects, developers and investors must weigh several critical factors to determine whether repurposing an existing property is both feasible and beneficial.
| Key Factor | Description |
| Structural soundness | The building must have a solid structural foundation capable of supporting the intended new use with minimal modifications. |
| Functional compatibility | Assess if the building’s layout, size, and existing features can be adapted to fit the new function effectively. |
| Zoning and regulations | Check if local zoning laws permit the proposed new use for the building. |
| Economic viability | Analyze the costs of renovation versus building new, considering market demand for the new use, and potential return on investment. |
| Historical significance | If the building is considered a heritage structure, preserving its architectural features and historical integrity becomes a crucial aspect. |
| Environmental considerations | Evaluate the potential for reducing environmental impact by reusing existing materials and minimizing demolition waste. |
| Community needs | Assess whether the proposed new use addresses a need within the community and contributes positively to the area. |
The Future of Adaptive Reuse
Adaptive reuse is a strategy that has a complex set of considerations for developers and investors who are seeking opportunities as the utility of existing assets are evaluated. “Property conversions are often leaps of faith in a property’s potential, offering exciting opportunities for developers and investors,” said Manus Clancy, head of Data Strategy at LightBox, during the CRE Weekly Digest podcast. “However, adaptive reuse comes with a complex set of challenges, from navigating zoning regulations to ensuring financial feasibility, making careful evaluation critical to success.”
As cities evolve and demand for innovative space solutions increases, adaptive reuse provides a path to sustainable growth, community revitalization, and long-term profitability. For CRE investors and developers willing to embrace this strategy, the opportunities are vast, from addressing housing shortages to creating vibrant, multi-functional properties that redefine urban living.
Subscribe To Insights
Be the first to get the latest news, updates and insights from LightBox.
