What are we going to do with a million obsolete office buildings?
Warren Tingen
Real Estate Brand Strategist and Marketer | AI Consulting for Real Estate Professionals | Expert Storytelling | Dungeon Master
Just as history has seen the reinvention of great inventions that changed our lives, the world of real estate is on the brink of a similar transformation. Consider the impact of groundbreaking inventions like the printing press, which revolutionized information dissemination, or the steam engine, which altered transportation and industry. The light bulb, telephone, aeroplane, personal computer, the Internet, and the mobile phone – each of these inventions evolved over time, significantly altering our way of life.
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Today, a similar evolution is unfolding in the realm of commercial real estate. Office buildings, once symbols of corporate prowess, now face a period of obsolescence, challenging us to reimagine their role in our urban landscapes. It's time for these structures to undergo their own reinvention. The following thoughts, ideas, and concepts explore how obsolete office buildings can transform, much like the great inventions of the past, to make a meaningful impact in today's marketplace.
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Housing (multi-family, senior living, affordable housing, student housing, homeless shelter) is the number one talked about conversion. It shouldn’t be the sole consideration when giving new life to an obsolete property. We asked commercial real estate (CRE) experts for other possible conversion concepts. Here is a list of innovative ideas from our respondents:
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The Rise of Residential Conversions
A growing trend is the transformation of office spaces into residential units. This conversion is about creating living spaces encompassing a variety of forms such as multi-family housing, senior living facilities, student accommodations, and even affordable housing. Such conversions are particularly beneficial in urban areas, where the demand for housing often exceeds supply. The Biden-Harris Administration introduced measures to facilitate the conversion of high-vacancy commercial properties to residential use. This includes new financing options, and technical assistance, aimed at creating affordable, energy-efficient housing. These actions are part of the White House Housing Supply Action Plan, which focuses on lowering housing costs and boosting supply.
Office vacancies averaged a 40-year high at 19.6% at the end of 2023, emphasizing the need for such initiatives. The push towards conversions is backed by the potential to add significant housing units. Research suggests that 15% of commercial district office buildings in major U.S. cities are suitable for residential conversion, potentially adding around 171,470 units. The conversion of office spaces to residential units is often seen as a solution to revitalizing downtown areas. However, it's important to understand that while office-to-residential conversions can be beneficial in certain circumstances, they are not a panacea for all challenges faced by downtown areas. Office space utilization, despite the rise in remote work, still shows signs of recovery in certain markets. The complexity and cost of conversions often require significant public funding and support to be viable.
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Specialized Spaces: Tailoring to Community Needs
Specialty conversions are gaining traction, catering to specific community needs. This includes spaces for children, seniors, fitness, healthcare, wellness, and professional services. Such specialized facilities offer a unique blend of convenience and tailored services, fostering community engagement and support. Mixed-use developments are increasingly being recognized as more beneficial than solely residential conversions. The idea of converting office spaces to a range of uses, including coworking spaces, educational facilities, and entertainment venues, can bring more vibrancy and diversity to downtown areas. This multifaceted approach aligns with the evolving nature of work and urban life, enhancing the dynamism of city centers.
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Retail Revival: Transforming Office Spaces into Marketplaces
The conversion of office buildings into retail spaces marks a significant evolution in urban land use. By transforming these areas into bustling marketplaces, cities are not only filling underused spaces but also enhancing the local shopping experience. These new retail destinations, ranging from boutiques to larger department stores, are becoming integral parts of the community fabric, offering residents and visitors alike a diverse range of shopping options. This shift is revitalizing neighborhoods, stimulating local economies, and reshaping the way we think about urban retail environments.
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Medical and Wellness Centers: Fostering Health in Urban Hearts
Converting spaces into medical and wellness centers is a pivotal development in urban health infrastructure. These conversions are more than just a change in building use; they represent an investment in community health and well-being. By situating medical facilities, clinics, and wellness centers in previously vacant office buildings, cities are making healthcare services more accessible and convenient. This not only addresses critical healthcare needs but also promotes a holistic approach to wellness, integrating these vital services into the daily lives of urban dwellers.
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Life Sciences and Laboratories: Pioneering New Frontiers
Dedicated spaces for life sciences and laboratories represent a groundbreaking shift in the use of former office buildings. These conversions are not just about repurposing space; they are about creating foundations for scientific breakthroughs and medical advancements. By facilitating research and development in accessible urban centers, these new labs can attract top talent, foster collaboration between academia and industry, and drive innovation in crucial fields such as biotechnology, pharmaceuticals, and environmental sciences. This trend underscores the versatility of office spaces and their potential to become key players in the global pursuit of knowledge and discovery.
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Nurturing Innovation: Incubating Tech and Academic Growth
Former office buildings are now emerging as epicenters for technological innovation and academic pursuit. These spaces, once defined by corporate structure, are being creatively repurposed to nurture tech startups and educational ventures. Such environments are ideal for fostering a culture of innovation, providing budding entrepreneurs and students with the resources and space to collaborate, experiment, and drive technological progress. This shift is not just about changing physical spaces; it's about fostering a new generation of thinkers and creators, turning what were once office blocks into thriving hubs of knowledge and innovation.
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Elevating Entertainment: Crafting Spaces for Joy and Engagement
The transformation of office spaces into entertainment venues opens exciting opportunities for urban areas. By converting these spaces into theaters, gaming zones, or live performance stages, cities can create new cultural focal points that attract diverse crowds and bolster the local economy. This renaissance in urban entertainment not only diversifies the cityscape but also addresses the growing demand for interactive and engaging leisure activities, contributing to the vibrancy and dynamism of city life.
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Challenges and Considerations
While the potential for office space conversions is vast, it's crucial to acknowledge the complexities involved. Factors such as building regulations, structural limitations, and financial feasibility play a significant role in determining the success of these conversions. Collaborations with architects, urban planners, and financial experts are key to navigating these challenges.
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The decision to convert office spaces into other uses involves several considerations, including the impact on local government revenues. It's vital to balance the need for residential spaces with the preservation of commercial property tax revenues, which are significant for many cities. This delicate balancing act is essential for maintaining fiscal stability while revitalizing urban centers. Additionally, all new developments have a team. A team capable in that category. In conversion, the team is exponentially more important. This team needs specialists and experts with experience targeted to the conversion type. These should be experts in the fields of architecture, legal, construction, brokerage, marketing, research, capital resources. They will assure the correct planning is conducted, costs are budgeted, and issues identified before and during the conversion process. The old saying, “you need all your ducks in a row,” comes to mind, before you move forward with your concept.
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The Impact on Cities and Communities
The conversion of office spaces is more than a real estate trend; it's a catalyst for urban renewal and community development. These transformations can breathe new life into declining urban areas, creating vibrant, multi-use spaces that serve a variety of community needs.
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While office-to-residential conversions can contribute to solving housing shortages in urban areas, they should be viewed as part of a broader strategy. This includes incentivizing new constructions and conversions equally, ensuring that public subsidies are tied to tangible public benefits, and considering the impacts on city finances and the local economy.
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Conclusion: A Future of Possibilities
The evolving landscape of office space conversions is a testament to the adaptability and resilience of the real estate sector. By reimagining these spaces, we open doors to new opportunities, meeting the changing needs of our societies and economies. As we continue to navigate this terrain, the possibilities are as limitless as our collective imagination.
Co-authored by Brett Hunsaker and Warren Tingen .
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References
Axios Philadelphia. (2024, January 24). Philadelphia's office building vacancies better than national average. Axios. https://www.axios.com/local/philadelphia/2024/01/24/office-building-vacancies-better-national-average
Commercial Search. (n.d.). How incentives boost office conversions. Retrieved from https://www.commercialsearch.com/news/how-incentives-boost-office-conversions/
Loh, T. H., Terplan, E., & Rowlands, D. W. (2023, April 27). Myths about converting offices into housing—and what can really revitalize downtowns. Brookings. https://www.brookings.edu/articles/myths-about-converting-offices-into-housing-and-what-can-really-revitalize-downtowns/
NAIOP. (n.d.). New uses for office buildings: Life science, medical, and multifamily conversions. https://www.naiop.org/research-and-publications/research-reports/reports/new-uses-for-office-buildings-life-science-medical-and-multifamily-conversions/
Shapiro, A. (2023, July 24). Downtown real estate finds new life as housing, not offices. NPR. https://www.npr.org/2023/07/24/1189403058/downtown-real-estate-housing-offices
Transwestern. (2023, October 16). Medical, meet office. Transwestern. https://transwestern.com/news-detail/medical-meet-office
Urban Land Institute. (n.d.). Retail to life science conversions: How to successfully reposition your asset. https://urbanland.uli.org/public/retail-to-life-science-conversions-how-to-successfully-reposition-your-asset/
Vanian, J. (2023, October 27). Biden administration aims to supercharge the conversion of empty offices into affordable housing. Fortune. https://fortune.com/2023/10/27/biden-administration-supercharge-empty-office-conversion-affordable-housing/
The White House. (2023, October 27). Commercial-to-residential conversion: Addressing office vacancies. https://www.whitehouse.gov/cea/written-materials/2023/10/27/commercial-to-residential-conversion-addressing-office-vacancies/