Tax Breaks Recommended for Office-to-Resi Conversions in Houston

As Houston grapples with some of the highest office vacancy rates in the country, city officials are cultivating a plan to convert empty space into residences.

Consultant AECOM proposed a tax-incentive program to spark office-to-residential conversions in downtown Houston, where the office vacancy rate is 25 percent, the Houston Chronicle reported.

The city of Houston already offers incentives for residential development in its downtown. The Downtown Living Initiative, created to spur apartment development, offers up to $15,000 per unit in tax rebates to developers.

However, incentivising office-to-resi conversions would require a more nuanced approach, said Andy Icken, the city’s economic development chief.

AECOM, whose report was commissioned by Downtown Houston, outlines two potential incentive scenarios.

One would give developers 75 percent of the incremental increase in property tax values over 15 years. The other would offer developers 100 percent of the incremental increase, but it hinges on collaboration from government entities like Harris County. The latter could pave the way for converting many 1980s-era offices, often ineligible for traditional historic tax credits.

AECOM pinpoints 37 prime candidates for conversion, based on criteria such as building age, vacancy rates and size. Among them, 708 Main and 1021 Main emerge as viable options for residential transformation, due to their floor plates and eligibility for historic tax credits. The 1021 Main building, also known as One City Center, is on the market and has garnered interest as a potential conversion project, the outlet reported, citing marketing materials from JLL.

San Francisco, New York and Calgary are among the cities that have already pioneered such conversion incentive programs, with Calgary offering $75 per square foot for office conversions.

A program encouraging office conversions in Houston wouldn’t have to focus on residential, said Kris Larson, president of Downtown Houston.

“We’re generally agnostic to the future use of those buildings and only prefer that they are used by people — preferably in ways that further the diversification of downtown,” Larson said.

—Quinn Donoghue