In 2023, Callan’s white paper Office-to-Residential Conversions: Vast Opportunity or Unfeasible Challenge examined a strategy gaining attention in the wake of pandemic-driven disruptions: converting underutilized office buildings into much-needed housing. That original paper outlined the steep hurdles such projects faced—from cost basis constraints to physical limitations and regulatory red tape.

Now, nearly two years later, we revisited the topic with a follow-up white paper assessing what has changed and what has not. The 2025 update, summarized here, reflects the real-time evolution of this strategy in response to shifting market dynamics, emerging design trends, and evolving public policy.

2025 Office Conversions: Falling Office Values Shift the Economics

One of the most notable changes affecting conversions is the sharp repricing of office assets. San Francisco’s average sales price per square foot is now around $240, down nearly 80% from peak pricing in 2019 and below 2004 levels. Boston has seen a similar retreat. These depressed valuations, combined with record-high vacancy rates and maturing office loans in a drastically different environment than what owners anticipated, are making it easier for developers to negotiate distressed asset purchases at favorable terms.

As a result, the financial feasibility of conversions has improved significantly—a stark contrast to 2023, when high acquisition costs made many projects unworkable. According to CBRE, 73 U.S. office conversion projects were completed in 2024, up from 63 in 2023, with another 309 planned or under way. Roughly three-quarters of these are residential in nature, with a projected yield of 38,000 housing units.

Challenges Persist—but So Does Momentum

Despite this momentum, conversions still represent only 1.7% of total U.S. office inventory, according to CBRE. Structural limitations, financing gaps, and regulatory complexity remain significant obstacles. As in 2023, not every office building is a candidate for conversion. Older buildings with smaller floor plates continue to offer the most straightforward opportunities, while deeper or irregular footprints often require costly interventions such as light wells or added stories to ensure livable space.

Yet even partial progress matters. The increased volume of planned projects, the mainstreaming of adaptive reuse strategies, and the integration of conversions into diversified real estate funds all reflect how far the concept has come in a short time.

Policy Tailwinds Gain Strength

A key theme in both papers is the critical role of policy. The update notes encouraging progress on this front. States and municipalities have introduced streamlined approvals, reduced fees, and tax incentives to spur conversion activity. California’s Assembly Bill 1490, for instance, caps review periods for qualifying projects at 60 days. Boston launched an incentive program that more than doubled its initial goal of 300 converted units in just one year.

Still, the 2025 paper cautions that uneven implementation and budget constraints limit the broader impact of these efforts. To realize their full potential, cities must balance speed and scale with affordability and sustainability.

New Trends: Mixed-Use and ESG Integration

Compared to 2023, developers in 2025 are embracing more integrated, flexible models. Conversions increasingly include mixed-use elements—such as ground-floor retail, coworking spaces, and cultural venues—to enhance financial performance and community engagement.

Sustainability has also moved to the forefront. Many projects now feature smart systems, net-zero retrofits, and passive design elements. These upgrades not only align with ESG goals but also improve the long-term viability of converted assets.

The rise of hybrid living models—where units flex between long-term leases and corporate housing—further illustrates the strategy’s growing sophistication and appeal.

The Outlook: Still Evolving, Increasingly Institutional

Conversions are still no silver bullet. But the strategy has clearly matured since 2023. Financial conditions have turned more favorable, regulatory pathways are expanding, and institutional investors are taking note.

A case in point is the massive 25 Water Street redevelopment in Manhattan, now known as SoMA. Featuring 1,320 units, extensive amenities, and a 35-year affordability-linked tax abatement, it exemplifies how scale, creativity, and public-private coordination can unlock conversion potential.

As cities and investors continue to adapt to a reshaped real estate landscape, office-to-residential conversions are poised to remain a compelling—if complex—tool for tackling housing shortages, reinvigorating urban cores, and repositioning portfolios in the face of lasting structural change.