The value of office buildings is sinking – but turning 'zombie' offices into apartments is harder than you think. Here's why.

• About $800 billion may be wiped off the value of offices in major cities this decade, per McKinsey.
• Converting New York offices into residences is possible but has its challenges, Bloomberg reported.

Many office buildings remain partially or completely empty following the pivot to remote work.

The new hybrid model means $800 billion could be wiped off the value of office space in some of the world's most significant cities such as New York this decade, according to a new report from McKinsey.

Turning some buildings into residential to help places like New York tackle a growing housing shortage seems like the obvious solution – but actually doing so is far from simple or inexpensive.

Joey Chilelli, managing director of investment firm Vanbarton Group, told Bloomberg that office-to-housing conversions face a number of structural challenges, costs, and restrictions.

In New York specifically, zoning regulations place strict limits on which buildings can be converted into housing.

Buildings in the financial district are only eligible if they were built before 1977, while it's 1961 for Midtown structures, Chilelli told Bloomberg. He described the regulations as "very arbitrary."

City officials — including the mayor, Eric Adams — have proposed making 1990 the cut-off date. That could create new homes for up to 40,000 New Yorkers, according to a January press release.

"Enabling more offices to convert to housing will help us bring back our commercial districts while also addressing our housing supply crisis," deputy mayor Maria Torres-Springer said in a statement.

Structural issues must also be considered, Chilelli told Bloomberg. A building must be assessed to ensure its lighting, ceilings, plumbing, and the like are suitable to be converted into residential space.

"You have to make sure that plumbing risers or duct work or electrical risers miss that steel – you can't hit that," he told the outlet. "But then you also have to have certain dimensions that are held within the apartment itself for code, so putting all those together is like one big puzzle."

Repurposing a structure can as much as double the price per square foot for a building, Chilelli said.

Even famous landmarks like the Flatiron Building in Manhattan have become "zombie" buildings, Michael Cohen, a New York real-estate veteran and a managing principal of Williams Equities, told Insider earlier this month.

No one wants to rent office space in such buildings, reducing their value and making it difficult for their owners to cover costs – particularly as rising interest rates make borrowing much more expensive.

GFP Real Estate, which paid $161 million for the Flatiron in May, says it could turn at least half of the building into apartments.

Given its prime location, The Real Deal speculated that someone like Jeff Bezos could buy the whole thing and turn it into a 22-story mega-apartment.

If that sounds unlikely, the site points out that Indian tycoon Mukesh Ambani built his own skyscraper in Mumbai for his family. It's covers a mere 400,000 square feet over 27 floors.

One building that dodged the zombie bullet, though, is an Art Deco tower in Lower Manhattan.

Built for the Irving Trust Company in 1931, One Wall Street is the largest office-to-residential conversion project New York has seen.

Macklowe Properties created 566 luxury condos costing seven figures in the 1.25 million-square-foot building while maintaining its the original aesthetic.

Lilla Smith of Macklowe told Insider in March: "We do not have quirky layouts because we took the effort to redo the core. It's not like a 1960s office building on Sixth Avenue, which is just not going to be conducive to being repurposed and converted from commercial to residential."