You’ve probably heard the saying, “Reduce, reuse, recycle.” While that chant might bring bottles and cans to mind, it can also apply to buildings.
Repurposing has gained popularity due to the shift to remote and hybrid work and the subsequent rise in office building vacancies. Looking forward to 2025 and beyond, adaptive reuse initiatives will impact real estate in Chicago and nationwide.
If you’re a real estate investor who is considering repurposing a commercial property, here’s everything you should know about how adaptive reuse works and its potential pros and cons.
What Is Adaptive Reuse?
CRE Daily defines adaptive reuse as “when a property is repurposed for a different use while retaining any historic structures or features of the original building.” This type of project can appeal to property owners or real estate developers looking to increase the value of a historic building.
Examples of commercial property conversions that qualify as adaptive reuse include the following:
- Office building into multi-family housing
- Industrial property into modern workspace
- Retail building into co-living space
The concept of adaptive reuse has existed for as long as there have been buildings, although the term first popped up in the 1970s, according to MBH Architects. A well-known instance of modern adaptive reuse occurred in the early ‘70s when Boston’s Old City Hall was transformed into restaurants and offices. Real estate developers and investors have repurposed properties in this manner to boost local economies, enhance declining urban areas, and increase sustainability.
How Adaptive Reuse Is Reshaping Commercial Real Estate Today
At the end of June 2024, the average office vacancy rate in the top metro areas in the U.S. hit a record high of 20.1 percent, compared to just 6.5 percent in 1979, according to Moody’s. Although the Moody’s analysis states that “reports of the office’s death have been greatly exaggerated” and “this asset class will always be in demand to varying degrees,” the hit office space has taken due to the rise of remote and hybrid work arrangements has spurred interest in adaptive reuse projects in cities across the country.
For example, during a “Chicago State of the Market” event in October, panelists proposed office-to-residential property conversions as a solution to the city’s surplus of office space and lack of housing, according to Bisnow. The article notes that a February 2024 RentCafe report found that Chicago was No. 4 in the nation in planned office-to-apartment development.
Repurposing isn’t just on the rise in the Chicago real estate space. In 2023, the number of apartments created via adaptive reuse in the U.S. increased by 17.6 percent compared to the previous year, according to RentCafe. Last year, hotels accounted for 36 percent of repurposed buildings, while offices were the second-most converted at 28 percent.
The cities with the highest number of converted apartments in 2023 were Manhattan, NY; Richmond, VA; Alameda, CA; Charlotte, NC; and Cincinnati, OH, illustrating the nationwide nature of this phenomenon.
Advantages of Adaptive Reuse
Repurposing property can prove beneficial in numerous ways. Here are some potential advantages of adaptive reuse, according to MBH and CRE Daily.
- Savings compared to developing new properties from the ground up
- Increasing economic and environmental sustainability (minimizing materials and emissions utilized to create new buildings)
- Preserving culture and history
- Promoting walkable communities
Drawbacks and Challenges Related to Adaptive Reuse
Like most endeavors, adaptive reuse projects also come with potential downsides. Here are some potential cons to consider before you repurpose a commercial property, according to CRE Daily and MBH.
- Limitations related to regulations, building codes and zoning
- High labor costs due to the increased need for skilled professionals compared to new construction
- Steep repair costs associated with renovations needed to comply with building codes
- Limitations related to the building’s layout
Ultimately, the pros and cons will vary depending on the project. Before converting a commercial property, CRE Daily advises considering all factors that could affect the success of repurposing, such as your finances, location, design, construction, engineering, and land use.
If you’re interested in exploring your commercial real estate options, the Avalon Realty Associates team is here to help. Our client services include property investment, real estate brokerage, property management, tenant representation, and energy-efficient design. We can also assist with development and construction.
Start today by visiting our Contact Us page, calling 847-506-1000, or emailing info@avalonreal.com.