The real estate industry experienced a high-performing first half of 2022, but declining transaction volume and fluctuating rates have left the market unstable. Real estate prices are tanking, deals are falling through, and lenders are wary. For transactions that make it to the closing table, the assets are limited. To pivot alongside an evergreen market, investors are turning to adaptive reuse.

Adaptive reuse is exactly what it sounds like. It is a shift from demolition and destruction to repurposing existing structures. The practice has become prevalent as the inventory of choice properties and vacant sites reduces, according to GlobeSt. Not to mention, adaptive reuse satisfies the emerging demand for sustainable development and the need for efficient use of resources across the built environment. The reuse of building materials involves saving a high percentage of embodied energy. Finding new uses for older structures significantly reduces the energy consumption associated with demolishing a structure and building a new one to replace it. This is especially important as a large part of a building’s carbon emissions comes from its materials, from fabrication and delivery to assembly, as reported by ArchDaily.

The term “adaptive reuse” emerged and gained popularity during the mid-1970s and was introduced to address the increased anxieties about finite natural resources and development space. However, the practice dates back further than that, and some of the earliest examples are traced back to the Renaissance. Fast forward to the 21st century, adaptive reuse presents vast opportunities for communities, developers, and architects to find renewed purpose in vacant, underutilized, or even historically-significant structures. In recent decades, the types of projects carried out have significantly evolved. From urban industrial spaces into artist’s lofts to vacant retail anchors into massive mixed-use developments, the ability to tap into other spaces such as office, food and beverage, residential, and healthcare solidify a promising future for many communities.

Today, millions of square feet of interior spaces sit vacant each year. According to the Harvard Business Review, the government alone owns an estimated 45,000 underused or underutilized buildings, plus abundant surplus land. Not to mention, e-commerce is at an all-time high, and hybrid/fully-remote working is evidently here to stay—resulting in vacant retail and office properties. Fortunately, developers have taken over empty structures, repositioning and rebranding them completely, while others have repurposed the spaces they have to be used in ways that are more conducive to the current environment. Depending on the configuration of the existing space, retailers can repurpose vacancies in a manner that requires minimal disruption to the original infrastructure of the building. Some ways retailers are repurposing spaces and adapting to the evolving times include focusing on malls for medicine, commercial office spaces for multifamily residential, dark anchors for fulfillment centers, and malls for mixed-use developments.

Although adaptive reuse has proven to be an efficient way to revitalize communities and cater to a new generation of consumers, there are key factors to consider when evaluating whether a project is financially feasible. An existing building will likely have a strong foundation and a structurally-sound core, but if it doesn’t, adding steel reinforcement, beams, ties, or connections to supporting beams and foundation can be a significant cost. Thus, finding a building that is structurally adaptable fit for the end product is imperative. Aside from the internal framework of a building, wiring, plumbing, ventilation, and other infrastructure systems must be considered. There is a chance that everything will have to be torn out completely and re-installed to bring the systems up to code. According to GlobeSt, this single factor can determine the financial feasibility of a project. A thorough inspection and testing are required to ensure that adaptive reuse is the best option.

In addition to the possibilities we’ve witnessed thus far, adaptive reuse presents an opportunity for creative thinking and a chance to give back to communities, especially in underserved neighborhoods where services or resources are lacking. In addition to retail, mixed-use, healthcare, and industrial, architects are exploring the viability of converting obsolete office buildings to other potential uses, such as affordable housing, schools, and labs.

Given the significant change in consumer behavior and a yo-yoing real estate market, it is up to developers, urban planners, and architects to master plan communities that are resilient and flexible and look towards the future. With sustainability being a massive driving force behind strict building codes and practices, adaptive reuse is not expected to slow down soon. Last year, New York City passed the most ambitious climate target in the country—aiming to achieve carbon neutrality and 100 percent clean electricity by 2050, according to NYC.gov. As other cities follow suit, sustainable building practices such as adaptive reuse will be the go-to choice when building new is not an option. Putting sustainability aside, the fluctuating real estate market is driving developers to target underperforming or misaligned assets in dense urban markets—providing a much-needed product to the surrounding community.

As with all practices, adaptive reuse also comes with its own set of challenges. Due to their nature, these projects present complexities not found in other real estate development projects. Developers must ensure that existing structures can feasibly be transformed to accommodate new uses. Before construction can begin, developers must address and resolve a variety of roadblocks, including those relating to structural, environmental, land use, parking, and traffic circulation, reports REBusiness Online. However, the challenges are often outweighed by the benefits.

A growing population, a warming planet, and a pandemic have, without a doubt, propelled new building practices and methodologies to satisfy changing consumer lifestyles. And although adaptive reuse is not suitable for every renovation, the opportunities it presents for community revitalization are endless. Environmental and economic sustainability, decreased public and social costs, urban renewal, and preservation of local identity and sense of place have made it easy for developers to elect the practice over demolition whenever possible.

 

By Mark Levine, Managing Vice President, and Cheryl Smith, Vice President at NELSON Worldwide