Dallas at Center of Office-to-Resi Movement in Texas

While the remote-work era spells trouble for office landlords across much of the nation, office-to-residential conversions are becoming increasingly common.

Among Texas cities, Dallas appears to be the epicenter of the movement, with a handful of developers transforming deserted office space into apartments, presenting a winning scenario for the residential and commercial real estate sectors, the Texas Tribune reported.

Apart from high office vacancy rates, which has caused distress to rear its head in several Texas cities, the Lone Star State is grappling with a significant housing shortage. The state needs an estimated 306,000 additional homes to reach adequate inventory levels, according to the housing policy nonprofit Up For Growth.

In Downtown Austin, where the office vacancy rate is 20 percent, office-to-resi conversions would be especially beneficial, city council member Zohaib Qadri said.

“What downtown Austin, and what Austin as a whole, needs is more housing,” Qadri told the outlet. “We have a lot of these empty office buildings and parking garages.”

President Joe Biden’s administration is encouraging cities and states to explore the conversion of vacant office space into affordable housing. Texas is poised to leverage this approach to alleviate its housing crisis.

Downtown Dallas has become a focal point for the office-to-resi trend. The iconic Santander Tower, a 50-story building built that’s one of the city’s tallest structures, is undergoing conversion. Nearly a quarter of Pacific Elm Properties’ 6.5 million square feet of office space in Dallas’ urban core, including the Santander Tower, is set to be transformed into approximately 1,100 residences.

“It’s going to support the long-term viability of our downtown market,” Pacific Elms’ Sara Terry told the outlet.

Office-to-resi projects in Dallas are expected to yield 2,000 multifamily units, according to Downtown Dallas Inc. Developers are primarily targeting older, outdated office buildings in the downtown area.

While the trend is gaining momentum, it’s not without challenges. Many office buildings are not suitable for residential conversions due to factors like floor plans that are unfriendly for conversion, plumbing difficulties and zoning regulations. Plus, such projects can be extremely expensive, and obtaining adequate financing is especially tough amid tighter lending standards and high interest rates.

—Quinn Donoghue