At the beginning of the year, the Philadelphia metro area had 2,697 apartments in the process of conversion from office space, an increase of 119% over last year, according to a recent Rent Cafe survey.
The area ranked seventh in the nation in the number of such adaptations underway or planned, up from 18th place last year. It’s the first time Philadelphia has broken into the top 10.
Office-building redevelopment has picked up rapidly since the pandemic deflated values, and many cities are looking to add housing capacity without new construction
The national conversion pipeline reached 90,300 apartments at the start of the year, about four times as many as there were in 2022.
Government-backed incentives are helping to drive the trend in many places, and analysts say that there will be increasing financial pressure on owners of underused office buildings.
“A massive amount of office building loans — over $213 billion — are coming due by the end of 2026,“ said Douglas Ressler, senior analyst and director of business intelligence for Yardi Matrix.
“When loans mature, borrowers need to either pay them off or refinance them. The problem is that many of these office buildings have lost significant value,” Ressler said.
Yardi is the parent company to RentCafe, its specific platform for marketing of apartments and houses to rent, online leasing, and resident services.
Yardi provides analytics for developers, Realtors, and investors.
Philly conversions
One prominent project in Philadelphia is the redevelopment of the Wanamaker Building.
TF Cornerstone of New York acquired the iconic department store last year and is planning 600 loft-style apartments similar to those the company built in Manhattan’s former industrial neighborhoods 40 years ago, along with local partner Alterra Property Group.
The partners will transform the massive structure, now largely vacant office space, into a mixed-use building with apartments that range from studio to three-bedroom units.
The connected towers of Market Street’s Centre Square — also known as the “Clothespin building” for its four-story pop art sculpture — has the most office space in Philadelphia, right across from City Hall. It is slated for redevelopment by PMC Property Group and investor and developer Dean Adler, with 250 to 500 apartments and 300 hotel rooms.
Philadelphia’s first major office-to-residential conversion, at 1701 Market St., was completed last spring, after it was vacated by the law firm Morgan Lewis & Bockius.