Individuals and businesses invest in commercial real estate for different reasons. In some cases, the goal is to require facilities in which to operate a business. Other times, people expect to receive rental income from tenants.
Office buildings have historically been reasonable commercial real estate investments. It may be more cost-effective for a company to own its offices than to rent them from a landlord. Those with multiple units in a large building can lease to a variety of tenants and ensure a steady stream of rental revenue. However, as companies embraced remote and hybrid work arrangements, the demand for office space has declined.
Maybe a business that acquired commercial space no longer needs a large standalone office building. Perhaps units have sat vacant, undermining the profitability of the investment. Owners of office buildings may consider redeveloping their space into individual condominiums or residential apartments.
What are some of the challenges associated with a project intended to convert a commercial space into a residential property?
Zoning issues may arise
A building previously zoned for business purposes may require zoning adjustments before the owner makes any drastic changes to the facilities. Owners may need help pursuing a zoning variance or permanently changing the zoning for the facility. That process can take months to complete or longer, and not every attempt to rezone a property is successful.
Building code complications are likely
Most office buildings have a small number of bathrooms. The entire building might share one centralized heating and cooling system. What works for a business space may not be adequate for residential units.
Building codes impose many obligations on those developing residential properties. For example, the codes may dictate the number of electrical outlets per square foot of wall and requirements for appropriate HVAC systems. There are many adjustments and investments likely necessary to turn a vacant office building into individual residential units. Whether the plan is to rent apartments or to sell condos could influence what rules apply while developing the individual units.
Commercial real estate owners may need help optimizing their portfolios and assessing different options for increasing the profitability of their holdings. Converting office buildings to residential space can be viable in some cases but requires extensive planning. Commercial property owners may want to explore alternatives to boost the value of their portfolio as the economy evolves.
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