Despite what many people think, investing in real estate involves a degree of risk. No matter how strong a local market may have been in years past, the economy can change quickly. Commercial real estate has long been the viable means of turning a one-time real estate investment into an ongoing stream of revenue.
However, not all commercial properties see the same level of demand that they enjoyed just a few years ago. Shifts in the economy and changes in worker expectations have led to far lower demand for office space. Commercial landlords and development companies may need to rethink the strategy used to monetize a structure as a rental space. One current trend is to convert existing offices into apartments.
Residential units are in high demand
Despite the downturn in demand for rented office space, demand for residential facilities remains consistently high. Rental prices have even been on the increase in recent years. There is also strong demand for residential properties on the open market. Companies frustrated by the stagnant commercial real estate sector may want to consider the possibility of converting units previously rented to businesses into residential units. Although the process is often complex, lengthy and costly, the return on the investment made in the conversion can be substantial.
There are many potential hurdles
The first challenge that presents itself is often zoning. Then, demolition of the existing office spaces and construction of compliant residential spaces comes next. Structural and system changes are often necessary to convert a building into code-compliant residential units. Marketing the building’s new units to prospective tenants can potentially occur before and during the construction stage. In some cases, such as when offering condominiums instead of rental units, it may be possible to build to suit the personal tastes of individual tenants. Doing so can theoretically increase the profit margins on the sales of individual units.
There may be a variety of challenges that arise depending on the location of a property and other factors. Seeking out support early on in any major real estate development project can help developers identify and avoid issues that could completely derail a project. The conversion of residential real estate to commercial real estate could potentially be a lucrative decision for an owner frustrated by vacant office space.