Hotels are becoming more popular for housing conversions, according to a new study from RentCafe.com.

They made up almost a third of commercial space retrofits in 2022, marking a five-year high, according to the rental web site’s analysis of so-called adaptive reuse projects that can help meet the nation’s housing needs.

What You Need To Know

  • Hotels made up almost a third of commercial space conversions into housing in 2022, according to a new study from RentCafe.com

  • Hotel property sales have increased for eight straight years, according to CoStar Group, and are excellent candidates for housing because they have individual bedrooms and bathrooms

  • Only office buildings saw more housing retrofits last year 

  • LA led the nation in so-called adaptive reuse

“The decline of previous hotel markets has emerged as a significant catalyst behind the current wave of hotel makeovers,” the report said. A drop in travel demand at the beginning of the pandemic led hotel owners in tourist cities like New York and San Francisco to sell to redevelopers.

Hotel property sales have increased for eight straight years, according to CoStar Group, and are excellent candidates for housing because they have individual bedrooms and bathrooms.

While office buildings were the most popular commercial space to be converted into apartments last year as workers continued to do their jobs from home, the pace at which they were retrofit declined compared with the previous two years, the study found.

Construction costs and regulations on residential construction are limiting office conversions to smaller, older properties with more easily adaptable floor plans, despite U.S. office vacancies hitting an all-time high this year.

Factories, healthcare buildings and warehouses rounded out the top five most popular commercial spaces for housing retrofits.

Los Angeles led the nation in commercial space-to-housing conversions last year. Of the 10,090 apartments converted from other uses in 2022, 1,292 were in LA. Kissimmee, Fla.; Alexandria, Va.; Baltimore, Md.; and St. Louis, Mo. rounded out the top five cities.

RentCafe projects LA will remain the leader in so-called adaptive reuse in the coming years as the city pushes to develop new housing and address an affordability crisis that has pushed many LA residents into homelessness.

New York, Chicago, Philadelphia and Cleveland, Ohio round out the top five cities for future adaptive reuse apartment conversions, according to RentCafe’s analysis of Yardi Matrix commercial real estate data. It projects more than 4,500 apartments will be converted in the near term from retail stores, offices and hotels as developers look for creative solutions to develop new affordable housing.