Less Than 1 in 6 Office Buildings Are Strong Candidates for Residential Conversion
Bisnow August 29, 2024, reported that 1 in 6 .S. office buildings are strong residential conversion candidates. On the one hand, it could be viewed as only 1 in 6, while a more optimistic slant would be 17% of U.S. office buildings may be residential conversion candidates.” Manhattan led U.S. markets with more than 53% of its existing office stock deemed quality candidates. San Francisco, at 25.8%, and Los Angeles, at 24.7%, were the only other markets within 30 percentage points of Manhattan. Meanwhile, a RentCafe report from earlier this year found the number of office buildings undergoing residential conversions topped 55,000 across the country, more than four times the 12,100 that were under construction in 2021.´ My unscientific view is that conversions from office to residential it is much less than that, perhaps 10%. “Market pricing and office values still play an important role in determining whether a conversion is viable. CommercialEdge reported office sales had surpassed $17B at the end of July, with properties going for an average of $173 per SF. Average office sale prices have been down 40% since 2021 and more than 25% of buildings sold in 2024 were purchased at a discount.” There is also an increasing acceptance that we will not return to the pre-pandemic office scenario where everyone comes to the office five days a week. Yes, there are mandates and there will be corporations demanding this or your out, but as Maddy McCarty wrote in Bisnow 9/2/24, “This year, office cheerleaders are mostly silent, settled numbers indicate a hybrid environment is working out for most, and while certain industries might continue to push mandates, office utilization will never be what it was.” “ There is now no significant movement to get employees fully back into the office, according to a study conducted on behalf of one of the companies that benefited most from the hybrid work movement, Zoom. Hybrid work is king, according to the online meetings giant.” Which means we have a lot of excess office space across the U.S., and as long as companies are profitable, and employees are happy does it really matter where the work gets done?
