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Office-to-residential conversions are piquing developers鈥� interest in U.S. cities, despite hurdles related to requirements for seismic upgrades and reviews of plans for historic buildings. Though developers are exploring possibilities in Portland, no conversions have been made in the city yet.

Gensler鈥檚 2024 design forecast shows conversions of underperforming office buildings are trending this year. Cities such as Portland desperately need housing, said Maurice Reid, co-studio director in Gensler鈥檚 Portland office. Many downtowns have a lot of vacant offices, and may see an increase in distressed property sales this year.

In national and international surveys, Gensler has found that people want to be downtown but in vibrant, mixed-use environments. While cities seek ways to activate their downtowns, Gensler has studied how office buildings can be converted into residential ones.

鈥淣ot every building is going to be suitable (for conversion),鈥� Reid said. 鈥淔rom a developer鈥檚 perspective, you鈥檇 want to identify the most suitable, the most advantageous, so you鈥檙e not wasting money or time or effort.鈥�

Around 20-25 percent of buildings in a typical commercial business district are suitable for renovation from office use to residential use, Reid said.

Gensler has developed a computer algorithm assessment tool to determine buildings鈥� suitability for conversions. Staffers enter about 80 different characteristics of a building and the tool gives the building or property a score, Reid said. A score of 80-100 is worth further consideration. The tool considers the building鈥檚 size, construction type, the distribution of windows, floor to ceiling height, and the dimensions of the floor plate and whether it would be suitable for apartments.

Gensler has completed two conversion projects (One Franklin Tower in Philadelphia and The Residences at Rivermark in Baton Rouge, Louisiana) and is working on another (1 St. Clair West in Toronto, Canada).

However, those projects did not have the seismic requirements that exist on the West Coast, Reid added. A seismic upgrade can account for about one-third of the cost of a renovation, he said.

The broad cost estimate for a conversion in Portland is around $350 per square foot, Reid said, plus the cost of acquiring the property unless the developer already owns it.

Right now, in Portland and other West Coast cities, conversions do not make sense financially for investors. Reid has not seen any anyone proceed with an office conversion project anywhere on the West Coast, he said.

In March 2023, Portland City Council passed two ordinances regarding office-to-residential conversions. One ordinance provides a limited exemption for system development charges (SDCs) when conversions of commercial buildings to residential ones include seismic retrofits. The amount of the waiver is limited to the cost of the seismic retrofit or $3 million, whichever is less, and expires in July 2027.

A second ordinance amended the seismic design requirements for office-to-residential conversions to meet the American Society of Civil Engineers鈥� 41-BPOE (Basic Performance Objective for Existing Buildings) standard. The permanent amendment adjusts the city鈥檚 building code to change the seismic improvement standard that a residential conversion must meet, in alignment with the building code of the city and county.

Two other recent policy changes, focused on housing production in general, are the Housing Regulatory Relief Project, policies from which took effect March 1, and a 24-month deferral of SDCs聽for new housing units authorized by the Portland City Council last year.

Ken Ray, spokesperson for the Portland Bureau of Development Services (BDS), stated in an email that the bureau has seen a lot of interest in office-to-residential conversions, but none have moved to the permitting phase yet. However, preliminary meetings for two projects are taking place with the permitting services team, he added.

Those projects are for a possible conversion on the upper floors of the building at 317 S.W. Sixth Ave., and another of a historic building at 220 N.W. Second Ave. BDS anticipates permit applications will be submitted for the projects sometime this year, Ray stated.

Some of the constraints for applicants, according to Ray, are seismic requirements and certain land use requirements. Many of the older buildings in the city need significant seismic upgrades, which are still too expensive for most developers. Also, many are historic buildings that require a historic design review. BDS has met with project teams often to try to offer solutions, but none have penciled out financially for the applicants, Ray said.

Meanwhile, in Canada, conversions are progressing. About three years ago, Gensler conducted an analysis of suitability for 6 million square feet of office space among multiple buildings in Calgary, Alberta. The city then gave direct grants to developers to bridge financial gaps for conversions. Five office conversion projects are under construction in Calgary and 10 more are in development, Reid said.

According to Gensler鈥檚 forecast, office-focused downtowns have become a thing of the past and will become mixed-use collections of retail, entertainment, sports, housing, and other lifestyle-anchored developments.

Mixed-use buildings are thriving in places like Portland, Reid said. The Ritz-Carlton, for example, has residences, a hotel, offices, restaurants, conference spaces, and more. Such buildings that offer a variety of services are more likely to attract leases in a very competitive market, he said.