Money Trees (and Office Greens): Why Real Estate Developers are Transforming Vacant Office Spaces into Trendy Urban Farms

Welcome to the trendy revolution of urban farming.

Three years ago, Washington, DC, Mayor Muriel Bowser unveiled a plan to transform vacant office buildings in downtown DC into residential properties with hopes of creating a 24/7 downtown to support the city’s economy and increase property values and tax revenue. However, as of August 2023, while 16 office-to-residential conversions had been announced, only a quarter of those projects were in process.

In practice, many developers have found residential conversions to be challenging, expensive, and complex due to rising construction costs and difficulties in securing financing. Now, some property owners are looking toward what they consider a more cost-effective, eco-friendly, and tax-beneficial alternative — vertical farms.

Transforming vacant office spaces into indoor farms includes installing conveyor belts that rotate crops stacked in vertical layers, simulating a plant’s natural circadian rhythm while controlling all environmental factors.

Vertical farming operations aren’t just a seed of an idea. These ventures have found opportunities selling directly to consumers at farmers markets and online, supplying local eateries and grocery stores, and partnering with food delivery services. A notable example is Area 2 Farms in Arlington, Virginia, which successfully converted an old legal document storage facility into a thriving agricultural hub, offering fresh produce to local subscribers weekly. Inspired by successful conversions in places like Calgary, Alberta, and Houston, Texas, other cities are now exploring similar prospects.

Should you consider swapping your office chairs for tomato plants? Here are three things to consider:

1. Ease of Conversion

The idea of living in your office building might sound absurd, right? That’s because most commercial office spaces are not suitable for residential living. They lack essential amenities like natural light, plumbing, and electricity. Transforming them into residences requires substantial modifications, including adding courtyards, installing bathrooms and kitchens, and creating additional units for more rent. Unlike the significant capital improvements required for residential conversions, conversions to vertical farms are relatively straightforward with modern technology. Systems like the Silo and AgriPlay can adapt to a variety of spaces as long as there is steady airflow and electricity supply. While some office-to-farm conversions may require HVAC and airflow improvements, vertical farming companies insist that these tasks will require significantly less time and labor costs compared to residential conversions.

2. Zoning

Property owners who are thinking about converting vacant office space into vertical farms must carefully examine the applicable zoning laws. Updated zoning regulations have made it easier in most cities, including DC, to convert office space for residential use, but urban farming has not received the same attention. However, some cities, like Arlington, Virginia, and New York City, are streamlining the process for office-to-farm transformations by modifying their zoning laws.

If you’re a property owner interested in these conversions, stay alert to evolving local zoning regulations.

3. Economic Benefits

By integrating an urban farm into their property, owners may be eligible to unlock immediate financial benefits at the local level.

• DC’s Urban Farm Tax Abatement Program offers up to a 90% property tax abatement (capped at $20,000) to property owners who use their property for urban farming. The tax deduction is based on the percentage of the building exclusively dedicated to urban farming.
• The United States Department of Agriculture (USDA) and DC government offer grants for urban farmers, providing additional support and stability to the urban farmer tenants and opportunities for property owners to negotiate agreements with the farmers about how these grants and funds will be used.
• Recent advancements in technology have significantly reduced operational costs, according to many involved in the sector, helping to overcome the profitability challenges that once affected vertical farming operations. Additionally, urban farm-to-table operations reduce packing and travel costs often associated with vendors stocking restaurants in high-density urban areas.

As societal and governmental attitudes shift, the concept of urban farms within vacant office buildings could take on new dimensions. One such possibility may be the cultivation of cannabis, as the industry becomes recognized as a growing and potentially lucrative sector due to changes in legislation and public perception. While it's too early to predict, the intersection of urban farming and the cannabis industry could present new opportunities and challenges for both the real estate and agricultural sectors. However, such a venture would need to navigate a complex landscape of legal, societal, and business considerations.

As developers and city officials grapple with what to do with an abundance of vacant office space, particularly in downtown areas, the unexpected harmony between urban farming and commercial real estate office buildings may emerge as a creative, even if temporary, solution — and perhaps turning these vacant spaces into thriving, green “money trees.”

In addition to our Real Estate practice group, ArentFox Schiff has industry groups focused on Agriculture Technology, Beverage & Food, and Cannabis. Please contact us with any inquiries.