CBRE Analysis: Cleveland Has Highest Percentage of its Office Stock Targeted for Conversion

Office conversions are on pace to more than double their recent annual average this year, with momentum picking up due to increased incentives and other support from state and local governments, according to new insight from CBRE.

Across 40 CBRE-tracked markets, Cleveland has the highest office percentage of its office inventory planned for conversions at 11% in 2023. This equates to 3.5 million sq. ft. planned, or in progress across 8 projects.

Approximately 57% of Cleveland conversions are office-to-multifamily projects, with multifamily accounting for 85% of conversions completed since 2016. Office-to-mixed-use conversions account for 41% and other various conversion projects account for 1%, respectively.

“Cleveland continues to see a high number of office conversions in 2023, particularly among older office assets to multifamily and mixed-use communities,” said Jamie Dunford, Senior Associate in CBRE’s Cleveland office. “These conversions are driven by state and federal historic tax credits as well as local government incentives that make these conversions viable from a financial standpoint for developers. They help to breathe new life into Cleveland’s urban landscape, driving population gain, activating isolated pockets of the central business district, and preserving the city’s rich historic character.”

Nationally

CBRE analyzed the number of office conversions in major U.S. cities since 2016 and found nearly 100 projects are expected to be completed this year. This a sharp increase from the annual average of 41 completed from 2016 to 2022.

In the U.S., 60 million sq. ft. of office conversions are planned or in progress, comprising 1.4% of the total U.S. office inventory, up from 1.2% in last year’s fourth quarter.

Nearly half (48%) of office conversions this year are to multifamily residential complexes. Office-to-mixed-use conversions are becoming more common, accounting for 18% of the pipeline, up from 7% in Q4 2022. Meanwhile, conversions of offices to life sciences labs now account for 19% of activity, down from 28% in last year’s fourth quarter.

Recently, major cities like New York and Chicago have passed zoning code changes and established public-private partnerships to make conversions more financially feasible. Such incentives are typically targeted at converting office buildings to much-need affordable and/or zero-emissions housing.

It’s worth noting that markets experiencing higher-than-average conversion percentages typically have more older office buildings with higher vacancy rates. For example, Boston has the largest footprint (sq. ft.) of conversions planned or underway at 6.1 million sq. ft., or 3% of its office inventory.

Top 10 Markets for Office Conversion Measured by Total Square Feet Planned/Underway in 2023

Looking ahead, CBRE is tracking 60 conversion projects scheduled to be completed in 2024, including 42 currently underway with another 18 in planning stages.

“Conversions offer one solution, but they will not resolve the challenges facing the office market on their own,” said Julie Whelan, CBRE Global Head of Occupier Research. “Cities will need to be strategic in their approach to transform former office districts into mixed-use areas that are highly desirable to people and businesses.”

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