Vacant Office Buildings Converted Into Homes

In recent years, many former office buildings have been renovated into apartments, driven by the COVID-19 pandemic’s lasting shift to work from home. Office vacancies hit a record 20.1% in the United States in the second quarter of this year, according to a recent report from Moody’s Analytics. This is up from 19.8% in the prior quarter and is the first time the 20% barrier has been broken.

With supply of homes also persistently below demand, local governments have increased incentives, including tax breaks and quicker approval processes, for office building conversion, CNN reported. In the first quarter of this year, 1.7% of total U.S. office supply was in the process of being redeveloped for other uses, according to a recent report from CBRE. Approximately 120 office-conversion projects nationwide—one-third of them to multifamily—are expected to be completed this year, compared with an annual average of 45 between 2016 and 2023. This pipeline indicates higher-than-average conversion completions during the next several years.

In line with this shift, office attendance globally has stabilized at 30% below pre-pandemic norms, according to a just released McKinsey Global Institute study. The research firm believes demand for office space in major cities will remain below pre-pandemic norms. For example, in 2030 demand for office space will be 13% lower than in 2019 for a city moderately affected, and 38% lower in heavily affected cities.

Falling demand also will drive down value. In the nine cities McKinsey studied, a total of $800 billion in the value of office space is at stake by 2030 if the trends in remote work remain.

While real estate trends are local, demand will be lower in neighborhoods and cities with dense office space, expensive housing, and large employers. McKinsey said cities and buildings can adapt and succeed by taking hybrid approaches. Buildings of the future might be more adaptable and designed with multiuse office and retail space, and neighborhoods should be developed to be mixed use.