Office-to-residential conversion projects are taking off in Washington, D.C.’s downtown corridor. As of September 2024, the city had named 12 projects taking shape in the once-thriving office corridor — two already leasing and 10 that are either announced or in progress.

The new conversion project pipeline is welcome news for city officials who have been actively trying to transform the downtown area into thriving mixed-use neighborhoods.

The district has still not regained much of its vibrancy since the onset of the COVID-19 pandemic, when companies occupying many downtown offices moved to remote or hybrid work schedules. While demand for high-end office space is high in D.C., office vacancy rates at the end of 2024 neared 20%, according to WTOP News.

Last year, D.C. officials launched a 20-year tax abatement program to help lure developers into taking on such conversion projects. During the first year of the program, called Housing in Downtown, three developers received tax breaks to help finance their projects. As D.C. expands the scope of that program over the next several years, it is also launching another tax abatement program that provides 15-year tax breaks for projects that convert offices into other uses --- it’s informally called the “Office to Anything” program.

“We just have to get vacant office buildings into more productive uses. It doesn’t necessarily have to be housing,” said D.C. Councilmember Brooke Pinto during a National League of Cities summit on housing in January. “Housing must be a priority. But so must every other productive use.”

The push for vibrant neighborhoods in downtown D.C. is based on the city’s dire need for more housing units to keep up with demand and help drive down the high cost of buying and renting a home in the city, officials said during the summit.

Since 2019, the city has created more than 36,000 new housing units and invested $1.4 billion toward housing production, D.C. Mayor Muriel Bowser said during the summit. Still, the city is currently producing less housing than officials would like, she added.

The city in 2023 set a goal of adding 15,000 housing units to its downtown over five years — a goal the city believes it can achieve without draining residents from other neighborhoods, the city’s deputy mayor, Lindsey Appiah, said during the summit.

“When all of those capital markets open up, we want people to know that we have a policy environment that will allow them to build, that will meet our goals of more housing in the downtown and help us meet our goals for affordability,” said Bowser.

One developer’s perspective

Post Brothers is among the real estate development companies planning to convert office buildings into residential housing in downtown D.C. The company won approval in October to turn an eight-story, 301,347-square-foot property in the city’s West End into a 13-story, 400-unit residential building with 20,000 square feet of retail space.

The zoning in the city has changed over time to make residential allowable just about anywhere, Matthew Pestronk, co-founder of Post Brothers, said during the Jan. 16 NLC summit. But the federal Height of Buildings Act caps the height of buildings at 130 feet. As a result, buildings throughout the city are built in “weird shapes,” Pestronk said, or are very long to fully utilize allowable floor space — designs that are less common in other U.S. cities.

“There are some unique challenges” to office-to-residential conversions, said Pestronk. Still, the building was being underutilized and was opportunistic in its price, he said.

The city’s tax abatement program “really helps the numbers,” said Pestronk. It also will result in the development of 82 inclusionary housing units — those providing what the city defines as affordable housing — blocks away from $10 million houses, he said.

The Housing in Downtown program will distribute as much as $41 million between 2024 and 2028, DC says, with distributions capped at $2.5 million between 2024 and 2026 and growing incrementally in the years after.

Conversion projects need to include a certain threshold of affordable housing to receive the tax abatements. Developers can qualify if 10% of the housing units are affordable to those earning  60% of the area median income or lower or if 18% of the units are affordable to those earning 80% of the AMI. The latter category creates affordable units that are slightly closer to the definition of workforce-level housing.

The program is anticipated to help the city reach 90% of its goals for creating downtown housing. Tax abatements for conversion projects in high-opportunity areas such as these are rare and could be replicated in some other cities, Pestronk added.

Looking beyond housing

Office-to-residential conversion projects are part of D.C.’s 2023 Downtown Action Plan, which aims to improve public safety in the area, provide legislative changes that support the creation of more housing and jobs, and bolster public-private partnerships with new and existing businesses, Councilmember Pinto said.

The “Office to Anything” program — officially called the Central Washington Activation Projects Temporary Tax Abatement — which the district rolled out in January, will offer 15-year tax abatements to developers that convert outdated and obsolete office spaces into new retail spaces, hotels, updated office spaces, restaurants and other nonresidential uses. The district will offer up to $5 million in tax abatements through the program in 2027— an amount that will increase each year after.

City officials project that in time, the program will help support the conversion of 2 million to 2.5 million square feet of office space.

For people to live downtown, there needs to be more diversity in building uses, said Pinto. So beyond enticing developers to build housing downtown, the city is working to make sure residents and workers want to spend time there and raise their kids there.

The city has been working to make downtown more attractive for residents and visitors. Post-pandemic crime waves have decreased significantly over the past year, with violent crime decreasing by 35% in 2024, reaching 30-year lows. And the city finalized a deal to fund $515 million in renovations to Capital One Arena, ensuring the Washington Capitals professional ice hockey team and Washington Wizards pro basketball team will remain downtown long-term.

The arena deal sent the message that “downtown D.C. is open for business, and now would be a good time to get involved,” said Pinto. The city’s now hearing from hotels and restaurant groups that they are considering doing business in the city.

Pinto believes the economic changes will bring grocery stores downtown as well, but some grocers may need incentives, which the city is providing through the Office to Anything program. Pinto said the city is also working with existing employers to provide more childcare in the area.

“We’re not just incentivizing the downtown [for developers], but we’re also recognizing that we want you to be able to raise your family here,” said Pinto. The city’s strategy is to bring “not just physical housing units downtown, but there’s all the amenities to support a thriving and safe and interesting life for people with families.”