Exploring the Viability of Office-to-Multifamily Conversions: Challenges and Potential Impact

According to some theoretical projections, the opportunity to repurpose existing office buildings into multifamily apartments is enormous. In reality, only a narrow set of existing office buildings are truly viable candidates for such conversions.

To quantify the possible scale of office-to-multifamily conversions, CoStar has defined two scenarios, each representing a probable ceiling on what can be feasibly converted.

For this analysis, we estimate physical feasibility as buildings with floor plate sizes of 30,000 square feet in the more aggressive scenario and 20,000 square feet in the more conservative scenario.

We also use current vacancy as a proxy for a feasible acquisition-cost basis. The more aggressive scenario uses 25% vacancy, which would imply generous public support to make the numbers work out. The more conservative scenario uses 50% vacancy.

Office-to-Residential Conversions Could Require Leap of Faith — and Government Help

All office buildings in suburban areas have been excluded based on the rationale that it will almost always be more attractive financially to develop new multifamily properties in the suburbs rather than conversions.

The analysis shows that the ceiling on conversions is lower than some reports have suggested. Even under the aggressive scenario, only about 6% of the office inventory would come off the market.

Supply Challenges

Assuming office tenants relocated to other buildings, this would bring vacancy down about 250 basis points, which would still be above where it was at the end of 2019.

On the multifamily side, the aggressive scenario would add about 465,000 units to the supply, or about 2.5% of the current inventory.

This is a meaningful amount but is dwarfed by the current multifamily construction pipeline, which includes 5,200 projects, representing 1.1 million new units underway.

Given the current state of the market, the office-to-multifamily conversion narrative holds intuitive appeal. But the reality is that, while transformative for the neighborhoods in which they occur, conversions will probably be relatively rare.

At this scale, they are unlikely to impact market fundamentals on either the office or the multifamily side, let alone solve the housing shortage.

[3:25 AM, 7/13/2023] +1 (786) 338-5382: June 29, 2023 | 6:02 P.M.

Casey’s General Stores plans to add at least 350 locations nationwide over the next three years, the latest in a wave of expansions and dealmaking in the convenience store and fuel stop industry.

The chain said this week in a presentation to investors it will expand both through new store openings and acquisitions. The plan will boost Casey’s total store count to at least 2,870 when completed. The Ankeny, Iowa-based company did not disclose how much it will invest in the expansion.

Convenience store chains are wrestling with major challenges to their business, such as declining tobacco sales and the likely shift away from gasoline to electric vehicles. To boost revenue, players like Buc-ee’s, Wawa and Royal Farms are rapidly opening new locations nationwide. Couche-Tard, owner of Circle K, this year spent about $100 million to acquire 30 locations in Arkansas and Florida that operate under different brand names.

Love's Travel Stops Opens Truck Washes in Missouri and Oklahoma

One of Casey’s top rivals, Kum & Go, is waiting for regulatory approval for its sale to Maverik. The 390-location Kum & Go, owned by Krause Group, is based Des Moines, Iowa.

Truck stops are also taking steps to juice sales through acquisitions and new service offerings. BP this year agreed to buy truck-stop chain TravelCenters of America for $1.3 billion. Love’s Travel Stops & Country Stores is adding truck washes at some of its 636 locations in 42 states. And Pilot Flying J, the largest truck travel center chain, is partnering with General Motors to install electric vehicle charging stations at up to 500 Pilot Flying J locations.

Casey’s, which says it’s the third-largest U.S. convenience store chain, did not disclose the specific areas for its expansion, but did say in its investor presentation it “has ample opportunity to expand within its footprint” in the Midwest. However, Casey’s also said it has an opportunity to expand into new areas, including Texas and Louisiana, that are within 500 miles of its distribution centers in Ankeny, Iowa; Terre Haute, Indiana; and Joplin, Missouri.

The company is also one of the biggest pizza restaurants. Most of its stores make pizza in-house. The company said during its investor presentation that growth in food sales is a key part of its expansion plan.