Rising Office Conversions to Multi-Family Residential Units

The Standard
Nov 6
3 min read

Updated: Nov 12

America’s Housing Gap Is Getting Worse

The U.S. apartment market faces a shortfall of 4.3 million units by 2035, according to the National Multifamily Housing Council (NMHC). Developers must build 600,000 additional apartments just to make up for the slowdown in construction that followed the 2008 financial crisis.

Meanwhile, affordable housing has been disappearing. Between 2015 and 2020, the number of U.S. apartments renting for under $1,000 per month declined by 4.7 million units. Rising costs have pushed renters into fewer choices — and opened the door for creative solutions.

The Solution: Turning Obsolete Office Space Into Housing

Across the U.S., demand for traditional office space has declined post-pandemic. Companies favor newer Class-A towers with cutting-edge amenities, leaving older B and C office buildings functionally obsolete.

Research shows:

86.8M sq. ft. of new offices (delivered after 2015) saw positive demand since COVID.
246.5M sq. ft. of older offices (delivered before 2015) lost tenants.
Nearly 80% of the decline came from buildings constructed before 1980.

This mismatch creates opportunity. Many of these outdated spaces can be converted into multifamily apartments.

Office-to-Residential Conversions: The National Trend

Avison Young estimates ~30% of older office stock in major U.S. cities could be converted into housing.
CommercialEdge calculates 1.2B sq. ft. of U.S. office inventory — nearly 15% of total space — is suitable for conversion.
CBRE reports conversions are on pace for a record 71 million sq. ft. in 2025, representing 1.7% of national office inventory.

Alongside major cities like New York City, Los Angeles, and Chicago, Arizona is advancing in urban development. Phoenix and Tucson are experiencing significant growth with new projects enhancing the living experience, such as modern residential complexes and mixed-use developments.

Why Arizona Is Perfectly Positioned

While much of the national focus is on coastal markets, Arizona’s fundamentals make it one of the best geographies for multifamily conversions:

✓Housing Deficit: Arizona is short ~56,000 housing units as of 2025. Permitting is down almost 20% year-over-year — meaning the gap is widening.
✓Office Vacancy: Phoenix’s office vacancy hovers around 22%, with much higher rates in older Class-B/C properties — prime candidates for conversion.
✓Population Growth: The Phoenix metro continues to rank among the fastest-growing areas in the U.S., adding tens of thousands of residents each year.
✓Economic Anchors: Phoenix ranks #2 in North America for planned data-center development and #5 in the nation for large industrial leases. These sectors bring jobs and household formation, fueling rental demand.

City Incentives & Investor Upside

The City of Phoenix Adaptive Reuse Program supports conversions with:

Fee incentives up to $7,000 for eligible projects.
Streamlined permitting that reduces friction and accelerates project timelines.

Other U.S. cities are layering on incentives like tax abatements and affordable housing credits. Similar tools could expand in Arizona, making conversions even more attractive.

What Makes a Building Conversion-Ready?

According to CBRE, the best candidates have:

✓Floor plates under 15,000 sq. ft. (easier to subdivide into livable units).
✓Good window lines and ceiling heights.
✓Rectilinear shapes that support plumbing, HVAC, and light access.

Avison Young identified 6,206 suitable buildings across 10 major U.S. cities, mostly built before 1990. While Phoenix isn’t at the top of the list yet, its growing office vacancy suggests more assets will fall into this bucket over the next 2–5 years.

Investor Takeaway

Conversions are still a small slice of the U.S. multifamily pie — just 73 projects completed in 2024 with another 30 in progress by year-end — but momentum is accelerating.

For investors, this means:

✓Lower basis entry points by acquiring obsolete office assets below replacement cost.
✓Faster speed to market than ground-up construction.
✓Alignment with public policy as cities and states seek to expand affordable housing.

Arizona’s combination of housing shortage, office vacancy and job growth creates one of the most compelling conversion markets in the country.

Ready to Invest in Arizona Conversions?

At The Standard Private Equity Group, we’re actively pursuing adaptive reuse projects across Phoenix and Maricopa County. Our strategy targets Class-B/C office assets in high-growth corridors and repositions them into Class-A multifamily living to capture durable demand.

👉 Book a call with our investor relations team to see our current pipeline and discover why Arizona conversions are one of the smartest investments of 2025.