In a post-pandemic world with a major shift to hybrid and remote work, offices are becoming increasingly vacant. In fact, it is estimated that by 2030, as many as 330 million square feet of office space will be empty in the United States. Early 2023 Report Designed by global real estate firm Cushman & Wakefield. What’s more, “natural causes” could leave an additional 740 million square feet of office space vacant by 2030, leaving about 1 billion square feet of unused office space in the U.S. alone, Cushman & Wakefield added.it’s almost 1.5 times the amount According to Cushman & Wakefield, it started in late 2019 before the onset of the pandemic.
“It’s no secret that the (office) vacancy rate is at a 30-year high right now. It’s about 18 percent,” said Julie Whelan, global head of household research at CB Richard Ellis. wealth. “So the question is, will this vacancy persist for a long time? Or will it fade away as the economy improves and tenants start leasing space again?”
One plausible solution to the glut of office space is to convert vacant properties into multifamily units. Reimagining and Repurposing Space by Converting Offices into Homes Could Help Alleviate America’s Undersupply of Residential Units – ‘Structural Shortage’ An estimated 2 million housing unitsAccording to Morgan Stanley. Morgan Stanley’s “aggressive” forecast even suggests that the US may be underbuilt by 6 million units.
CBRE, Deloitte and others are learning Office to Resi Conversion These types of programs are predicted to continue into the future, especially as more cities begin to offer incentive programs such as tax breaks, historical tax credits, and the like. A study published by De Lite in late July found an average of about 30 such projects per year between 2016 and 2021, totaling nearly 200 office-to-residential projects.
But as many Americans continue to work from home or in hybrid models, only 217 conversion projects are close to completion, according to Deloitte research.
“If you look at the acreage that has been remodeled since 2016, or even the acreage that is planned to be remodeled through 2025, it’s only 90 million square feet,” Whelan said. “So that’s what I mean when I say that the conversions that have taken place and are taking place are really just a drop in the ocean for the vacancies that exist.”
What’s more, Deloitte forecasts that these projects could become profitable within the next five years. The consulting giant estimates that by 2030, about 14,700 affordable housing units could be added to the central business district (the business and business center of the city). But how can these projects be brought to life? Experts agree that more office-to-housing incentives should be offered.
“Cities really have to provide the right incentives to help developers make it work economically,” Whelan said. “If done right, and we found that all of these factors align, converting office buildings into multifamily Homes could be a step in the right direction and help revitalize some of the city neighborhoods we may be currently facing challenges.”
Some large cities have recently implemented incentives for office-to-residential conversions. In fact, Boston this summer announced the launch of a pilot program offering tax credits for retrofitting underutilized downtown office buildings. Chicago, Washington, D.C., and California have also launched programs to convert commercial spaces into residential units.
As of the end of 2021, Chicago’s LaSalle Central Tax Incremental Financing (TIF) District had a balance of $197 million in TIF financing available to developers of commercial real estate projects. Washington, D.C. announced a 20-year, $2.5 million tax break for homeowners who add at least 10 new housing units, and California allocated $400 million in incentives for office-to-residential conversions. However, some of these projects have tight timelines, which can present challenges for would-be developers.
“It’s probably only for upcoming projects,” bobby fixreal estate developer and co-founder form developerA real estate technology company previously revealed wealth In an interview about an office-to-residential conversion. “It might move some projects forward, but it doesn’t seem like there’s enough time to influence many other things because it’s just an initial pilot program,” he added, particularly when it comes to the new Boston incentives.
In addition to residential conversion projects, vacant office space can be transformed into different commercial spaces, including hotels, mixed-use buildings, or even abandoned and used for urban green spaces, Whelan said.
“Ultimately, our goal is not just to look at it from an asset point of view, but to really look at urban planning,” she added. “Some cities in the U.S. do take a more holistic approach, by focusing on concentrated vacancy in an area and incentivizing that area to redevelop it.”
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