Even while companies continue to bring workers back to the office, the pandemic is still impacting commercial real estate as businesses pare down their lease holdings and reconfigure office space into smaller co-working environments.
Across the country, nearly 71,000 apartment units will be created from former office space, according to a February 2025 report from RentCafe. That’s up 28% from the same time last year, continuing a trend that began in 2022.
In Atlanta, office-to-residential conversions are scheduled to add 2,236 new apartment units this year, placing it sixth among all U.S. cities, behind New York, Washington, D.C., Los Angeles, Chicago and Dallas.
It’s a boon for Atlanta’s construction trades. Residential building is forecast to hit $11.5 billion in 2025, making it the strongest construction segment across Metro Atlanta this year, according to Dodge Data & Analytics as reported in ENR magazine. More than half of that will be multifamily projects.
Among the most notable office-to-residential conversions being planned is the 60-year-old tower at 2 Peachtree Street; at 890,000 square feet and 44 floors, it was Atlanta’s tallest building for the first 10 years it was open.
It will be a mixed-use development that includes about 625 residential units – including some “affordable housing” to be offered at below-market rates.
Another planned mixed-use redevelopment – the 1.3 million square-foot Georgia-Pacific Center, 133 Peach Street – should add more than 400 residential units on the highest floors of the 51-story tower, according to Urbanize Atlanta.
While these and other projects promise to keep construction crews busy for the next few years, such conversions are difficult for a number of reasons, highlighted in an extensive 2024 study by economic development and real estate consultant HR&A Advisors.
Market conditions: Atlanta real estate markets – commercial and residential alike – are in better shape than many cities. The office vacancy rate of 19.2% is slightly below the national average, according to CommercialEdge. The average monthly apartment rent of $2,000 is 3% below the national average and has been dropping since summer 2024, according to Zillow. Higher rents and more office vacancies make conversions easier to cost-justify.
Physical attributes and location: Lack of operable windows, onsite parking and nearby amenities like schools and grocery stores make many urban buildings unattractive to potential renters.
Conversion cost: High interest rates, reluctant lenders and the time required to vacate even a partially occupied building add project expenses that are difficult to overcome. The small floor plans in many older buildings make redevelopment too expensive on a per-unit basis.
Regulatory requirements: While Atlanta’s zoning requirements create minimal barriers and are generally favorable to conversion, Mayor Andre Dickens’ goal to add or preserve 20,000 affordable housing units over the next five years is a potential hurdle for any project seeking some form of public incentives.Other key takeaways from the study included:
- “Rational conversions will require a combination of weak office performance, strong residential performance, and the ability to take advantage of new or existing incentives.”
- “Under current conditions, conversions would not be rational without incentives unless [an office building’s] vacancy exceeds 70%. This is true across a range of residential rents and construction costs.”
- “Existing incentives are mostly limited to Historic Preservation Tax Credits which are oversubscribed and can add project costs but help lower the barrier to conversions to office buildings with 50% vacancy or higher…. However, a limited number of buildings, [mostly older and smaller] would be eligible.”
Overall, 2025 is expected to be a busy year for Atlanta’s trades – tempered by uncertainty about the lending environment and the impact of potential tariffs on building supplies.
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