Adaptive Reuse: Convert Office/ Hotel into Residential Space

Increase revenue by repurposing vacant buildings to attract tenants
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Adaptive Reuse: Repurposing Vacant Buildings to Attract Tenants

Modern trends like working from home and the increase in e-commerce have changed lifestyles and businesses. This process was accelerated in 2020, since companies relied on technology to operate during the COVID-19 lockdowns. This has affected the real estate sector, and some property types are vacant while others are in high demand.

Adaptive reuse is an excellent business strategy for commercial real estate companies who are currently struggling with low occupancy rates. Vacant spaces can be repurposed into occupancies that are currently in high demand, with the goal of attracting more tenants.

Repurposing a building is simpler with the help of our professional MEP engineers, who can help you convert the existing installations at the lowest possible cost.

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When Does It Make Sense to Repurpose a Building?

eCom GrowthLike any renovation project, repurposing a building is a financial decision. Adaptive reuse can increase the income from properties that currently have few occupants, by creating spaces that are more likely to be rented.

Hotels, offices and shopping malls are among the building types that are currently affected by low occupancy. The drop in tourism and business travel has reduced hotel room occupancy, and videoconferencing is now an alternative to traveling for meetings. Working from home has reduced the need for office space, while e-commerce is displacing physical stores.

At the same time, the demand for warehouses and data centers has increased. Warehousing services are necessary to support e-commerce, and data center services are necessary for both e-commerce and remote collaboration.

The demand for affordable housing is always rising, especially in urban areas like NYC. In addition, many employees who work from home permanently are looking for larger apartments where they can set up a personal office.

Adaptive reuse makes sense from a business standpoint when you have a vacant building that can be converted into a high-demand occupancy without major changes. For example, repurposing hotels into apartment buildings is relatively simple, and also repurposing shopping malls into warehouses. On the other hand, converting a vacant hotel into a warehouse is more difficult, since the required layout is very different in each case.

If you plan to convert an office building or hotel into a residential building, offers you a free financial analysis along with our design services.

Repurposing Vacant Buildings Into Apartments

Regardless of the increase in remote collaboration and e-commerce, the demand for residential spaces is always on the rise, and especially affordable housing.Adaptive reuse is a viable strategy to meet the need for housing, especially when many buildings are vacant.

Hotels are ideal for being repurposed into apartments, since they are already separated into private dwellings with their own MEP systems. In many cases, they can be converted into studio apartments by simply adding a kitchen.

Office spaces can also be converted into apartments, with some additional changes compared with hotel rooms:

  • Small private offices can be repurposed easily, and many of them already have a kitchen. Typically, the main change is adding a bedroom and shower. Since an office area is already available in these spaces, the resulting apartments are very useful for professionals who work from home.
  • Open offices can be divided with modular wall systems, where MEP components are embedded to simplify the installation. While each dwelling will require its own installations, the main electrical and plumbing connections can be used without changes.

Retail spaces can also become apartments, depending on how they are designed. Smaller spaces with their own installations are the most suitable for residential use, just like with offices.

Taking Advantage of Low Interest Rates for Adaptive Reuse

Prime RateIn 2020, the Federal Reserve lowered the federal funds rate to 0.00% - 0.25%, as an economic stimulus to mitigate the impact of COVID-19. This measure has lowered interest in the entire banking sector, providing a great opportunity to finance an adaptive reuse project with a loan. For example, the prime rate offered by banks to their best customers is only 3.25% as of early 2021.

The low interest rates currently available can save developers thousands of dollars over time. The following example is very simple, but it demonstrates the benefit of low interest:

  • Assume that an adaptive reuse project has a cost of $5,000,000, and it will be financed with a 10-year loan.
  • With a 5% interest loan, the developer will pay over $540,000 in total interest over a 10-year period. However, this drops to around $340,000 with a 3.25% loan.
  • In this example, the project owner saves $200,000 over time by using low interest rates.

Low interest rates also provide an excellent opportunity to finance energy efficiency measures, making the repurposed building even more attractive for tenants. For example, a warehouse that operates 24/7 can achieve significant savings with LED lighting.

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Repurposing Vacant Buildings Into Warehouses and Data Centers

E-commerce grew by over 27% in 2020, according to a study by eMarketer. Many retailers have closed physical stores, but at the same time they are opening online stores. However, e-commerce platforms need computer servers to host them, while the products sold need to be stored somewhere before reaching the customer. This has created demand for warehouses and data centers, and many commercial spaces can be easily repurposed to meet this growing demand.

Retail spaces are already designed for product shelves, and their layout is also suitable for storage racks or computer  servers. A shopping mall can be repurposed for both warehousing and data centers - these services are in high demand, and they achieve synergy.

  • Larger warehouses have special requirements, since they involve forklifts and commercial trucks.
  • However, vacant spaces that were previously used by department stores can be adapted for this purpose.

Office spaces can also be used for product storage and data centers. They already have electrical installations that are designed for plenty of IT equipment, making them suitable for data centers. When they are not found in upper floors with reduced access, vacant offices with an open floor plan can also be repurposed for product storage.

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