The result may be that high-rise office buildings have much lower occupancy rates in the future, and that has got some in the commercial real estate sector thinking about how these spaces might be retrofitted, realtor.com reported recently.
Ben Carson, U.S. Housing and Urban Development secretary, told Fox News in an interview in June that the remote work trend may “free up a lot of commercial space, which can be converted to affordable housing”. He said that his department was already looking at ways in which it might help to facilitate that transformation.
George Ratiu, the senior economist at realtor.com, said this week that office to residential conversions could be a “win-win solution” in some cities that have seen a decline in lease renewals and where there are also housing shortages. He said that the urban office sector will not go away, but that many companies will need less office space than before as more people work from home on a permanent basis or adopt hybrid schedules that stagger in-office time so fewer workers come into contact with each other.
As such, he said that some office buildings may even be converted into hybrid spaces, with a few floors reserved for residential units and others remaining as offices.
There are already examples of this. In Cleveland, a number of office buildings, department stores, and even factories have been converted into high-end apartments, and some even have waterfront views. Around 60 buildings all in all have been transformed using state and federal tax credits.
Joe Marinucci, president, and CEO of the Downtown Cleveland Alliance said around 2.5 million square feet of empty commercial space in the mid-2000s has been transformed into housing or hotel buildings.
Still, one problem that needs to be overcome is that many office spaces are locked into long-term, multiyear leases.
“We won’t see the full impact on offices until these leases end,” KC Conway, chief economist of the CCIM Institute, told realtor.com.
There’s also greater potential for struggling hotels to be converted into residential spaces. A recent survey by the American Hotel & Lodging Association found that more than half of 600 hotel owners said they’re in danger of losing their properties due to foreclosure as a result of a downturn in business due to the coronavirus.
“Many are going to close,” said Richard Rubin, CEO of Repvblik, a Los Angeles–based firm that turns commercial space into housing nationwide. He said his company recently transformed a six-building Days Inn in Branson, Mo., into a complex of the studio and one-bedroom apartments, with a clubhouse, gym, and renovated pool.
Still, other housing analysts say it’s too early to know what will happen to most urban office spaces. Following the 9/11 terrorist attacks, many had predicted a similar demise only to be proven wrong.