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Office-to-Residential Conversions Pick Up in DC Area

by Lark Turner

Office-to-Residential Conversions Pick Up in DC Area: Figure 1
Location and layout made this Silver Spring office building a good bet for a conversion.

Those that have been reading UrbanTurf closely over the past few months know that an interesting trend has emerged in the DC area development market: a number of office buildings are converting into residential projects.

And it’s not just offices being renovated into residential buildings, either; developers are also looking at commercially-zoned land or land occupied with offices as ripe teardown opportunities for residences.

Take ProMark Development and architecture firm BKV Group’s conversion of a former office building in downtown Silver Spring. The Octave at 1320 Fenwick Lane (map) where a 102-unit condo project is planned, was vacated in 2014, making way for a conversion.

“There is a slowdown, particularly in the suburban office market,” ProMark’s Pete McLaughlin told UrbanTurf. “Meanwhile, the outright rush of demand to multifamily rental product has been extraordinary.”

McLaughlin’s referring chiefly to the region’s record-setting absorption rate, which measures how fast new apartment products are snapped up by renters. In 2014 the rate set records, with 11,237 Class A apartments absorbed during the year, according to real estate data firm Delta Associates.

Office-to-Residential Conversions Pick Up in DC Area: Figure 2
A rendering of LCOR’s 453-unit conversion in Crystal City.

The conversion in Silver Spring joins several others, including a number at the intersection of Crystal City and Pentagon City, where a whole new neighborhood is being developed in what’s traditionally been more of an office park. The projects include WeWork and Vornado’s conversion of Crystal Plaza 6 into a 252-unit micro-unit community and LCOR’s twenty-story, 453-unit residential complex planned for 400 Army-Navy Drive (map), currently the site of the “Paper Clip” office building.

The trend toward conversion is in line with the DC area’s economy and shifting demographics, said researcher David Versel of George Mason University. Increasing numbers of young renters are heading to the city even as job growth has stagnated in the sectors that traditionally do business in office buildings.

Office-to-Residential Conversions Pick Up in DC Area: Figure 3
This Dupont office building at 1255 22nd Street NW is slated for conversion.

A few projects within the District have also moved toward conversion. An office building at 1255 22nd Street NW (map), vacant for the last two years, is slated for a conversion that would dramatically change the facade. In a smaller project at 1108 16th Street NW (map), the former offices of Planned Parenthood will be turned into a combination of offices and 15 condos.

Versel said a lack of new jobs in the professional and business services sector, along with stagnant federal jobs growth, has limited the market for office space. When new space is built — often in DC proper — it’s usually leased by companies leaving old and unrenovated office space further away from the city center. That space isn’t in demand and ends up vacant. The combination of factors may create particularly good opportunities for office-to-residential conversions in certain close-in suburban areas just outside DC.

Office-to-Residential Conversions Pick Up in DC Area: Figure 4
The Planned Parenthood conversion will change the look of the building.

But these suburban conversions, like ProMark’s Silver Spring project, have to meet a number of criteria to be viable projects.

“It all depends on where those buildings are located,” said William Rich, who heads up Delta Associates’ multifamily practice. “There are a lot of office parks that have high vacancy that don’t make sense for conversions.”

McLaughlin echoed that sentiment.

“We wouldn’t necessarily do this building if it was an office building further north in Montgomery County, but the fact that it’s located 800 feet or so from the Red Line and is walkable to grocery stores, nightlife, theaters, we think that’s critical for this type of product,” he said.

See other articles related to: trends, office-to-residential, conversions

This article originally published at http://dc.urbanturf.com/articles/blog/office-to-residential_conversions_pick_up_in_dc/9479

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