Good morning, everyone.
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As inflation is easing out and rents growing at a much slower pace, baseline rates are expected to decrease in the next few months, to reach below-3-percent levels by the end of 2025.
This will certainly boost the commercial property sector, both from investment, sales and development perspectives.
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With so many people working from home, offices are sitting empty. By September 2021, jobs in office-heavy industries dropped by 518,000 compared to before the pandemic, and remote workers increased from 8.9 million in 2019 to 20.3 million in 2021. This shift left 127 million fewer square feet of occupied office space between mid-2020 and October 2021, while demand for apartments rose by one million units during the same period.
The report examines whether converting office buildings into apartments makes financial sense, focusing on 27 metro areas hit hardest by the drop in office space use. It found that in 22 of these areas, the market conditions are good for such conversions, especially where high-end apartment rents are higher than mid-to-lower-tier office rents. If 20% of the vacant office space were converted, it could create around 43,500 new housing units, each averaging about 1,000 square feet. This approach not only repurposes empty offices but also helps address housing shortages in cities.
Top metro areas for these conversions include New York, Chicago, Los Angeles, and Orange County, with the potential to create 7,484, 5,688, 4,200, and 3,065 units respectively. Other cities with strong potential include Boston, Atlanta, Philadelphia, Minneapolis, Denver, and Seattle. These findings highlight a big opportunity for urban redevelopment, transforming unused office spaces into much-needed housing, especially as many cities face housing affordability issues.
Examples like Octave 1320 in Silver Spring, Maryland, and 100 Van Ness in San Francisco, California, show how developers have successfully managed these conversions.
