Adaptive Reuse: New Construction Is Not Always the Answer
With an enduring pandemic, labor shortages, supply chain struggles, and high costs for building materials, real estate investors and developers are making what’s old new again. Instead of building brand new from the ground up, many developers and investors are giving old buildings a new lease on life through adaptive reuse.
Adaptive reuse has been around for decades, but projects accelerated across the United States in 2020 and 2021. Developers and building owners continue to reexamine their portfolios in response to the ongoing economic, health, and climate volatility. As such, underperforming buildings in both urban and suburban areas are being repositioned and transformed for new purposes in line with the needs of today’s residents and businesses. From former suburban malls and big-box retail stores to office campuses and abandoned warehouses, there are plenty of buildings ripe for reuse.
What is driving this, and what does the future hold for adaptive reuse? We’ll explore the trend that is taking the real estate industry by storm.
Promoting Sustainability
Constructing a brand-new building is not only costly but also contributes to emissions and construction and demolition waste. According to a U.S. Environmental Protection Agency (EPA) report, 26% of all non-industrial waste generated in the United States is caused by building-related construction and demolition debris. Construction and demolition account for more than 600 million tons of waste per year. Additionally, while most new buildings aim for LEED certification, brand-new, energy-efficient buildings can still take between 10 and 80 years to pay back the carbon load resulting from their construction.
Greener construction amid climate change makes adaptive reuse an attractive option. It takes a lot less carbon to repurpose an existing building than it does to tear one down and build from scratch. As the stats show, there is no comparison.
Higher ROI
Not only is adaptive reuse a sustainable solution, but it is also less expensive than similar, new-build projects.
A new construction project requires additional steps such as groundwork, foundations, structural work, and masonry. When an existing building is repurposed, these steps are skipped. A Deloitte report showed that when compared to new construction, adaptive reuse projects typically cost 16% less and are completed in 18% less time — and that was before the materials shortages and supply chain issues we’re now facing.
These factors combined with low interest rates make it an ideal time for real estate investors to pursue adaptive reuse projects.
Less Risk in Volatile Environments
Real estate developers, especially, are not keen on building a massive new office tower while the full ramifications of the pandemic remain unknown and the economy looks shaky. Investing in an adaptive reuse project is far less risky. Plus, COVID-19 has created a surplus of empty spaces such as retail stores, restaurants, malls, hotels, and even some office buildings.
While it is difficult to quantify the size and scope of the adaptive reuse market, a report published by CCIM Institute identified more than 33 million square feet of adaptive reuse projects valued at approximately $4.4 billion that are either in progress or recently completed. The report also projects that adaptive reuse projects could increase twofold by 2023.
There are many successful examples of adaptive reuse projects across the nation. Some highlights include:
The Highland Mall in Austin, Texas, was redeveloped into a mixed-use project. The 81-acre site was developed into a state-of-the-art campus including office, retail, affordable housing, single-family housing, 1.25 miles of trails, and three new parks.
Ponce City Market in Atlanta is a 2.1-million-square-foot mixed-use development located in a former Sears warehouse. The complex now boasts national and local retail anchors, restaurants, a food hall, boutiques, offices, and residential units.
The Old Chicago Main Post Office sat vacant for two decades. However, after a nearly $1 billion restoration, it is now a thriving work hub. Located near the central business district, the 2.8-million-square-foot structure has more than 90% of its office and retail space leased to leading companies like PepsiCo, Walgreens, and Uber.
Atlanta’s Historic Pullman Yard in Kirkyard is undergoing an incredible transformation into a mixed-use project that will feature state-of-the-art hotels, offices, apartments, food courts, restaurants, entertainment soundstages, trails, bike paths, and more.
2022 is expected to see more high-profile adaptive reuse projects, as real estate investors and developers remain focused on maximizing their existing assets. Construction materials are expensive and scarce right now, and this only increases the focus on sustainability. What most are finding is that new construction is not always the answer — but adaptive reuse may be.