New York City has seen success in converting office space into residences. Chicago should do the same.
Chicago’s commercial vacancies could help its residential shortage if policymakers are willing to make it a priority.
Chicago’s downtown office vacancy rate is now estimated at 28%. It’s not the largest nationally, but it’s still high compared to cities such as New York at 13%.
Much of this space won’t be filled because more companies are shifting to remote and hybrid work. At the same time, Illinois needs to build 227,000 housing units during the next five years to keep up with demand, doubling current production rates.
Much of that development will need to be in and around Chicago.
When combined, these two problems – too many empty commercial buildings and not enough housing – could point to the solution: commercial-to-residential building conversions.
New York City offers a clear example of how it can work. In Midtown Manhattan, developers are converting the former headquarters of Pfizer Inc. into 1,600 apartments.
According to data from the CBRE Group, 22 office-to-residential conversions have been completed in Manhattan, with another 29 planned or underway. These projects help stabilize property values, create new housing faster than ground-up construction and bring more life to what were empty commercial corridors.
These projects are moving quickly because the city employs policies that work with developers as opposed to trying to force developers to follow city mandates. For example, New York’s 467-m tax abatement gives developers 35 years of property tax certainty if they include affordable units. That can make otherwise financially unviable projects work for developers.
New York also built a broad framework allowing more buildings to qualify automatically for this kind of development. It lowered affordability requirements to make development more feasible.
Chicago takes a more narrow, case-by-case approach to financial assistance with tax increment financing dollars and has higher affordability requirements. The city has had 11 commercial-to-residential conversions completed, with nine more in the pipeline. That’s progress, but the city should do more to encourage these conversions to address its housing needs.
Commercial-to-residential conversions are faster than projects starting from the ground up. Vacant offices are often near transit, jobs and amenities that make them desirable locations and ideal for tenants. Turning commercial corridors into mixed-use districts can make downtown feel like a community, not just a workplace. It can bring more profits to neighboring businesses and restaurants.
Chicago could do a few things to further encourage the development of these projects.
First, it could revise the Affordable Requirements Ordinance to encourage development. Currently, Chicago forces residential projects with more than 10 units requiring a zoning change to make 20% of the units affordable.
In practice, the requirement disincentivizes development, decreasing the amount of housing available and increasing prices. Instead, Chicago could switch to the property tax abatement model used by New York.
While it would be better to do away with the affordability ordinance entirely, the tax abatement incentive would make conversions more feasible. It would still allow city leaders to foster affordable housing.
Second, they could make commercial-to-residential conversions a larger priority in the Central Area Plan 2045. The plan aims to increase the downtown population and revitalize the Loop as a neighborhood, not just as a business hub.
Finally, Chicago needs to cut the red tape. The city council only recently allowed conversions of the ground floors of commercial buildings. That’s a good start, but like New York the city should expand eligibility, streamline zoning approvals and remove unnecessary regulatory barriers that slow the process.
Converting empty office space into housing won’t solve Chicago’s housing shortage overnight, but it can make a meaningful dent while revitalizing the city’s commercial core.
