Facing waning office demand, landlords are weighing housing conversions, with the Seattle City Council aiming to provide a nudge of assistance.
Hoping to generate 2,000 homes, the Seattle City Council passed legislation in early July to support conversion of existing commercial buildings to residential use. Proposed by Mayor Bruce Harrell in spring, the legislation is designed to help fill vacant commercial buildings throughout the city, but with a particular emphasis in Downtown Seattle, where office vacancy rates have topped 20% and actual occupancy is likely sitting closer to 50%, as some leased offices sit empty.
Harrell’s legislation was amended by the City Council before final approval. But the key features of the legislation largely remained intact, offering an incentivized pathway for existing non-residential uses in buildings to convert to residential uses.
In an early July meeting, Councilmember Tammy Morales, who chairs the land use committee, said the time is ripe to promote office conversions, but many obstacles remain, which is why incentives are important.
“We know that not all office buildings will be adaptable to residential use because of their layout, the natural lighting that might be or not be in existence, and we know that any conversion would need to add plumbing and other amenities, which can be costly,” she said. “And so this package also does include incentives without which the conversions would not be possible, because they are uniquely expensive to build.”
Office buildings typically have centralized bathrooms shared across an entire floor and limited if any kitchen facilities. To be converted to apartments or condominiums, significant plumbing work is necessary to create bathrooms and kitchens in each unit. This comes with considerable expense. Particularly in newer office buildings, deep floorplates create an added obstacle, since natural light is an expected amenity for residences, if not American office cubicles. That’s why most analyses, both City and independent, have indicated that older office stock in skinnier buildings are the ideal candidates for conversion.
Charles Mudede, a culture critic and senior staff writer at The Stranger, has suggested that converting offices to dormitory style congregate homes offers away around the plumbing conundrum, which he argued turns the policy into a “big distraction” that will create unaffordable homes, insofar as it creates any housing. However, it’s not clear that there’s an entity interested in taking on such conversions or a large enough market for those style of units to scale up such an approach.
The City hopes the regulatory incentives offered are enough to get the ball rolling despite those hurdles.
The legislation allows conversions to be exempt from most types of development standards, design review, and the City’s Mandatory Housing Affordability (MHA) program which requires contributions for affordable housing. Project eligibility is limited to Downtown, Commercial, Neighborhood Commercial, Seattle Mixed, Midrise, and Highrise zones where multifamily residential uses are permitted.
Eligible projects include existing non-residential structures that received an occupancy certificate or otherwise legally occupied prior to March 1, 2024. Special provisions also allow for conversion of planned structures where an unexpired Master Use Permit was issued prior to March 1, 2024, though fewer exemptions may apply if structural framing hasn’t yet started.
As a further incentive, the legislation does allow for some minor vertical and horizontal expansions to existing structures to accommodate new residential uses. This includes up to a 5% horizontal expansion in floor area for things like mechanical equipment and accessible ramps and up to an extra 15 feet in vertical expansion for top floor residential uses.
Councilmembers made three key changes to the legislation.
Councilmember Cathy Moore (District 5) sponsored an amendment to limit scope of the MHA exemption. Her amendment removed two types of multifamily zones (Midrise and Highrise) from the exemption, retaining the status quo for participation in the MHA program for conversion projects in those multifamily zones.
In committee, Moore said that developers should be providing a public benefit for any MHA waivers offered by the City and worried that the City is increasingly “chipping away at MHA.” Accordingly, Moore’s rationale for her MHA amendment was that the legislation should be “narrowly tailored” to convert vacant commercial buildings and activate Downtown. To that end, Midrise and Highrise multifamily zones are not located in Downtown and typically have limited, if any, commercial uses.
Councilmember Tammy Morales (District 2) sponsored two amendments. Her first amendment allows projects to opt into the conversion provisions if an application for an eligible project in an existing structure is filed prior to the effective date of the ordinance. This essentially allows projects to start the permitting process sooner and ultimately speed up the approval timeline. Her other amendment, however, keeps development standards in place within special overlay districts, such as those in Pioneer Square, Chinatown-International District, and shoreline areas, eliminating the exemption that applies elsewhere via the program.
Morales’ latter amendment was proposed, in part, to comply with the Shoreline Master Program (SMP), which the City regulates through special overlay districts within 200 feet of major waterbodies like Elliott Bay, Lake Union, and Lake Washington. The SMP is usually amended once every eight years under state-mandated parameters and in coordination with the Washington State Department of Ecology, which administers the planning framework. However, the breadth of the Morales amendment could have been narrowed to only exclude SMP overlays from the legislation. As a result, Morales’ amendment will likely dissuade office conversion projects across numerous historic districts in Downtown Seattle.
Nevertheless, the City is optimistic that the legislation could have a positive impact on housing production. Somewhere between 1,000 and 2,000 homes could be created in the seven years, according to an analysis from the City’s Office of Planning and Community Development (OPCD), with typical conversions costing $400,000 or more per unit. That’s certainly a modest number of new homes in a city that needs tens of thousands more in that timeframe, but it could inject some life into underutilized blocks and offer a boost in economic activity in areas of the city seeing lower numbers of office workers, and deliver many more homes at or below median rental and ownership prices.
Underpinning part of the legislation is state law passed last year, which requires Seattle to remove barriers to conversion of commercial buildings to residential uses in zones where commercial and mixed uses are allowed. That statute requires regulatory changes before July 2025 by generally waiving parking mandates, setbacks, floor area ratio, density limits, and exterior design and architectural requirements.
In a June committee meeting, Geoffrey Wendlandt, an OPCD planner, said that the Executive Branch could bring forward a complementary financial incentive package, as authorized by the state legislature last year, for conversion of certain underutilized commercial buildings. If an incentive package is adopted, it would allow a pathway qualifying projects to defer payment of sales taxes that would ordinarily apply to new construction.
Qualifying projects would need to be primarily multifamily housing in nature and rent or sell at least 10% of units as affordable to households making at or below 80% of the area median income, and meet any other established requirements by the City. In time, sponsors of qualifying projects could have deferred sales tax forgiven if properties are maintained for at least 10 years under program requirements.
Councilmember Tanya Woo, who has experience in mixed-use development after converting the historic Louisa Hotel to affordable housing, explicitly expressed support for the idea of a tax incentive saying, “every little bit helps.” Woo said that conversion and renovation projects can cost three times as much as new development. Councilmember Morales didn’t express an outright opinion on financial incentives, but she did ask when such legislation might be coming forward, with Wendlandt responding that the City did not have a specific timeline yet.
Over the past year, Harrell has been rolling out pieces of his Downtown Activation Plan, which has placed a strong emphasis on adding flexibility and incentives to the City’s labyrinthine Land Use Code. The Mayor recently proposed legislation in Downtown, South Lake Union, and Uptown to allow for less active ground floor uses on key streets and exempting residential, hotel, and research and laboratory developments from design review in Downtown. And last year, he won approval for legislation incentivizing hotels in parts of Belltown and taller residential buildings in the Downtown Retail Core.
The conversion legislation goes into effect on Saturday, August 10.
Doug Trumm is publisher of The Urbanist. An Urbanist writer since 2015, he dreams of pedestrianizing streets, blanketing the city in bus lanes, and unleashing a mass timber building spree to end the affordable housing shortage and avert our coming climate catastrophe. He graduated from the Evans School of Public Policy and Governance at the University of Washington in 2019. He lives in East Fremont and loves to explore the city on his bike.