It’s true that converting office space to multifamily buildings is no easy task. But such conversions offer an opportunity for cities to remove outdated or obsolete office space and replace it with highly desirable rental housing.

This truth explains the prediction from RentCafe that the number of office-to-apartment conversions will soar across the United States in 2025.

In its Market Insights report published Jan. 30, RentCafe said estimates that the number of apartments set to be converted from office spaces in the United States will jump to a record-breaking 70,700 in 2025.

That’s up significantly from the 23,100 office-to-apartment conversions that the country saw in 2022.

RentCafe reported, too, that office conversions make up almost 42% of the nearly 169,000 apartments expected to result from future adaptive reuse projects.

You might think that only older office buildings are slated for multifamily conversions. That’s not entirely true. While most conversions do involve older properties, RentCafe reported that the adaptive reuse of office buildings built between the 1990s and 2010s is on the rise, jumping from 1.27% of past office-to-apartment conversions to a projected 7% of future projects.

The reasons behind the increase in office conversions aren’t complicated. The United States has a severe shortage of housing units. At the same time, the work-from-home movement means that a growing amount of office space is sitting vacant today, especially space in older properties that lack the amenities sought by today’s tenants.

One solution to both eliminate vacant office space and boost a community’s housing supply is to convert obsolete office space into multifamily properties.

Conversions, though, do bring challenges. The biggest? Most office spaces, even obsolete ones, aren’t good candidates for conversion to apartment properties. An office building needs to sit in the right location, preferably a walkable neighborhood close to public transportation, restaurants and shops.

The building itself must lend itself to conversion, too. If developers have to make too many changes to the property, the cost of conversion won’t make financial sense.

RentCafe reported that the number of future apartments resulting from office conversions has been on the rise since 2022. Back then, office conversions were expected to result in 23,100 new apartments. That number rose to 45,200 in 2023 and 55,300 in 2024, before hitting a projected record-setting 70,700 this year.

According to RentCafe’s report, more than 1.2 billion square feet of office space — equal to 14.8% of total office inventory — is considered suitable for conversion.

The office-to-apartment pipeline is strongest in New York City, with 8,310 future apartments expected to result from office conversions in 2025. Chicago leads the Midwest, with 3,606 future apartments projected from office conversions as of this year.

Dallas ranks high, too, with RentCafe reporting that the metropolitan area’s office-to-apartment pipeline stands at 2,725 units as of 2025. Minneapolis ranked seventh on RentCafe’s list, with an office-to-apartment pipeline of 1,873 units as of 2025.

Other area cities ranking high on RentCafe’s list include ninth-place Cincinnati, with an office-to-apartment pipeline of 1,753 units; 10th-place Kansas City, Missouri, 1,676 units; 12th-place Cleveland, 1,619; and 16th-place Omaha, 1,294.

MAG Capital Partners has purchased two logistics facilities in Hidalgo County in a sale-leaseback transaction with McAllen, Texas-based Commodities Integrated Logistics.

Totaling 360,000 square feet on 23 acres in Weslaco, Texas, 2300 Sugar Sweet Ave. and 501 S Pleasantview Drive are 20 minutes east of McAllen with immediate access to I-2 and Mid Valley Airport.

With over 30 years of operating history, CiL occupies over 1.5 million square feet of logistics space along the U.S.-Mexico border for the import, export, warehousing, distribution and transportation of industrial, commercial and perishable products. Additionally, CiL offers its CiL Deliveries System for small- and medium-sized manufacturers and entrepreneurs to benefit from digital commerce and treaties in place with the U.S., Mexico and Canada.

Mexico was the United States’ top trading partner in 2023 with total two-way goods trade at $799 billion, according to the Office of the United States Trade Representative’s 2024 U.S.-Mexico High-Level Economic Dialogue Mid-Year Review. As noted in the Texas Department of Transportation’s 2024 Border District Trade Transportation Report, in 2022, Texas ranked first in terms of the value of goods traded with Mexico at $285.6 billion, followed by California at $91.3 billion.

Jovan Jokic with Helios CRE represented the seller.

Dayton Street Partners closed a full-building, 164,640-square-foot lease with deugro (USA), Inc. at its recently completed truck terminal at 2828 FM 1405 in Houston, Texas. 

Located on 47 acres in the Cedar Port Industrial Park, the cross-dock terminal features 214 doors and 1,000 trailer positions. DSP acquired the land in 2022 and developed the property, the first speculative truck terminal in the greater Houston area. 

TGS Cedar Port Industrial Park is the largest master-planned, rail- and barge-served industrial park in the United States. Spanning 15,000 acres, it offers unparalleled access to State Highway 99 (Grand Parkway), Interstate 10, State Highway 225, State Highway 146, and the Port of Houston, making it an ideal location for logistics operations. 

In the dynamic realm of real estate, market fluctuations continually redefine the strategies of property owners, developers and managers. The complex interplay between insurers and reinsurers, although often behind the scenes, significantly impacts the cost and availability of insurance for commercial properties. With the current reinsurance market facing rising costs and limited capacity, real estate stakeholders must adopt innovative and proactive approaches to navigate these challenges effectively.

Catastrophic losses fuel reinsurance costs surge

Reinsurance, often coined “insurance for insurers,” plays a crucial role in risk management, particularly within the commercial real estate sector. The recent shifts in the reinsurance landscape have underscored its growing importance, with reinsurance pricing predicted to peak in 2024. These sudden changes have complicated the quest for affordable and comprehensive insurance coverage, necessitating a reassessment of strategies for real estate owners and operators to protect their investments.

Senior vice president, commercial risk at Hub International.

The primary driver of this upheaval in the reinsurance market has been the surge in catastrophic losses due to global natural disasters. Notably, 2023 stands out as one of the costliest years on record, with 28 weather and climate disasters that incurred an estimated $92.9 billion in damages, surpassing the previous record of 22 in 2020. While most of us typically jump to the idea of Coastal Hurricanes and Western U.S. Wildfires being the common natural disasters occurring in the United States, the Central and Midwest Regions have recently seen an increase in events from convective storms, straight line winds, and hail damage resulting in insured losses.

The ripple effect of reinsurance

To safeguard against substantial losses, insurance carriers depend on reinsurance. However, as reinsurers adjust their strategies to address rising risks, the repercussions are felt across the industry. When reinsurers hike costs or reduce capacity, insurance companies are forced to absorb more risk. This inevitably leads to higher insurance premiums, stricter limitations on risk exposure with increased deductibles, or a reduction in the maximum coverage offered.

Real estate investors are typically drawn to the Midwest due to its diversified economy, consistent economic growth and low unemployment rates, which collectively foster a stable real estate environment. The region’s lower cost of living and business operations compared to other areas results in higher rental yields, attracting those looking to expand their investment portfolios.

As the reinsurance market exerts its influence, real estate owners and operators in Michigan face the challenge of paying more for potentially reduced coverage. Property owners must proactively seek solutions to mitigate these impacts and safeguard their investments.

Here are four options to navigate the uncertain reinsurance market:

1. Ensure accurate property valuations. Accurately assessing replacement costs in the event of catastrophic events is critical to avoid inaccurate replacement costs on property policies, as undervalued properties are increasingly avoided by insurers. Property owners and developers should include third-party reconstruction appraisals during insurance applications or renewals to provide insurers with a comprehensive view of reconstruction costs to help avoid potential penalties and added costs.
2. Explore parametric insurance. Unlike traditional insurance models that rely on actual property damage, parametric insurance covers risks from specific perils, such as storms, and triggers payouts regardless of physical damage. This approach allows for swift loss management and mitigates disruptions to business operations, offering real estate stakeholders in Michigan a faster recovery mechanism.
3. Strive for excellence in property management. Implementing robust risk management strategies, particularly in areas prone to floods and fires, can expand insurance options and potentially reduce costs. Maintaining properties so they are in optimal condition and enhancing security measures to prevent theft and damage are essential components of this strategy.
4. Leverage expertise and resources. Navigating the complex reinsurance landscape requires expert guidance. Collaborating with trusted advisors can reveal innovative solutions to reduce insurance costs. Utilizing strategies such as catastrophe (CAT) modeling, selective coverage placements across multiple carriers and thorough reviews of property leases for hidden liabilities can uncover opportunities for enhanced coverage at optimal prices.

Reassurance with reinsurance

In a time where resilience is crucial, real estate owners and operators must adopt proactive strategies to safeguard their investments from the volatile reinsurance market. By integrating meticulous property management, precise valuations, innovative insurance models and expert guidance, stakeholders can not only withstand challenges but also discover growth opportunities. As the reinsurance landscape evolves, those who stay agile and forward-thinking are well-positioned to thrive despite the obstacles.

Austin Smith is a Senior Vice President in Commercial Risk at international insurance brokerage Hub International Michigan.

Cushman & Wakefield has arranged the sale of Granite Point Business Center in Denton, Texas, in the Dallas-Fort Worth market.

Cushman & Wakefield’s Jim Carpenter, Jud Clements, Robby Rieke and Trevor Berry represented TA Realty LLC in its sale to High Street Logistics Properties.

Located at 2300 Interstate 35W Frontage Road in Denton, Granite Point Business Center totals 145,000 square feet and is fully leased to four tenants that have been in occupancy of the property for an average of 13.5 years. The Class A, rear-load distribution center is located in the Far North/I-35 submarket, just south of the convergence of I-35W and I-35E in Denton and features I-35W visibility. Additionally, Texas DOT will be expanding the frontage roads in front of the property, resulting in direct ingress/egress with I-35W.

“A high-quality, very functional asset, well located within a rapidly growing sub-market and at a basis well below replacement cost attracts the most active buyers in the market,” said Clements, Cushman & Wakefield’s Executive Managing Director. “The asset is fully leased to a diverse group of quality tenants, which provides the opportunity to grow cash flow and capture near-term NOI growth by marking below-market rents to market.”

Granite Point Business Center was developed in 2006 and features 24’ clear heights, eight storefronts, 50×50 column spacing and 286 parking spots.

PREMIER Design + Build Group broke ground in December on an office addition and renovation for Sumitomo Drive Technologies in Lufkin, Texas.

The project marks the first for PREMIER in the region and the second to work with Sumitomo Drive Technologies, a leading manufacturer of power transmission and motion control solutions. 

In September, the team wrapped up a warehouse and office renovation for Sumitomo Drive Technologies in Glendale Heights, Ill. Based on that project–after which Sumitomo Drive Technologies presented Project Superintendent Dan Vanderbiest with an award for performance–the client requested the same building team for the Texas office addition.  

“Maintaining the same construction team helps ensure consistent quality and efficiency because the team is already familiar with the project’s unique requirements and challenges,” says Eduardo Plata, Corporate Project Manager for Sumitomo Machinery Corporation of America. “Their established communication, collaboration, and understanding of the project’s goals lead to fewer mistakes, smoother workflows, and quicker problem-solving. This continuity fosters a higher level of trust, accountability, and ultimately, better results.” 

The 7,812-square-foot expansion in Texas will more than double Sumitomo Drive Technologies’ current office space and will house individual and open offices, a training room, a break room, restrooms, and conference rooms. The PREMIER team also will renovate the existing bathroom and break room in the adjoining warehouse and add 10 new parking spaces.  

“We pride ourselves on our ability to be flexible to changes and to provide solutions and options to our clients,” Vanderbiest says. “Sumitomo Drive Technologies trusts what we’re doing and that we act in their best interest. We go above and beyond as a team in a lot of ways to ensure projects like the addition for Sumitomo Drive Technologies are successful.”

Expanding to New Markets

Though PREMIER is active in the Midwest, Northeast, and Western regions, the office addition is the first for the contractor in Texas. PREMIER finds success in new markets due to its commitment to adaptability and its ability to conduct thorough regional research. 

The primary challenge associated with entering a new market is securing contractors that can be trusted to uphold PREMIER’s high construction standards and adapt to its model of exceeding client expectations. To find regional subcontractors for the office expansion, the team conducts research to identify potential quality partners and seeks referrals from trusted sources. 

PREMIER also has taken a less conventional approach by contacting top general contractors in the region for subcontractor recommendations, getting to know the local contracting community, and building relationships. 

“It’s kind of unconventional because in some ways they’re our competition,” says Joseph Ahrens, Senior Vice President/Midwest Market Leader at PREMIER. “But we explain that we’re not trying to take work, we’re trying to help their trusted subcontractor base get more work–a win-win for everyone.”

Once subcontractor partners are identified, Vanderbiest and the field team conduct in-person interviews with each company to ensure they can uphold PREMIER’s commitment to quality. 

The building team also needs to acclimate to environmental factors associated with a new market. Texas is warm, so some processes are simpler than in the Midwest and other cold climates, like pouring concrete and backfilling materials. 

Permitting in the Lufkin area is simpler than in markets like the Midwest, which streamlines the project but also comes with difficulties. No permits are required for the office addition, so PREMIER must be certain construction is completed according to local codes, requiring extensive research and due diligence, as well as hiring design consultants familiar with regional codes. 

“Though this is east Texas, which is a very different climate and market than we’ve worked in before, Sumitomo Drive Technologies still trusts us because they know how we operate and that it’s our goal to understand their needs and find solutions to any challenges,” Ahrens says. 

Construction is expected to be completed on the facility, located at 2612 US-69 in Lufkin, in June 2025.