Getting creative with vacant office space
After two years of overhyped return-to-work prognostications, many desks around the nation still sit vacant. But on some empty floors of midtown Manhattan office buildings, unused space has lately been playing a new role: film set.
The transformation from a real-life office into a facsimile on the small screen is part of the business strategy of Backlot, a location service for film and television production in New York, which offers landlords a way to earn revenue from their lifeless cubicles.
The boom in content production and the demand for genuine locations have helped the business take off, said Darren Goldberg, managing partner and head of acquisitions for Backlot. “When you shoot scenes for shows like ‘Billions’ or ‘Succession,’ it’s not just about the one room,” he said. “It’s really about the authenticity of the environment.”
The glut of office space left by the pandemic-induced transition to remote work is expected to remain a stubborn problem in big U.S. cities. The service offered by Backlot is just one of a number of new alternatives being proposed to landlords with empty offices. Some building owners convert office buildings into apartments and life sciences labs as a long-term solution, but others are seeking shorter-term options that are cheaper and easier to manage, such as renovating space to accommodate self-storage, gyms and even schools.
The task is complicated by the rising cost of any type of renovation and the lack of foot traffic in many downtowns and office districts, said Brian Strawberry, chief economist at consulting firm FMI.
The timing is good for companies such as Backlot that offer alternative uses for commercial real estate. Office rents have recovered from the depths of the recession, but they are still down 6.2% percent on average nationally since 2019, with renewal rates declining significantly, according to a report from JLL, a real estate services firm. A record number of leases are expiring in 2023, forcing landlords to rethink how they fill and earn revenue from their office towers.
The surplus of office space is 20% to 40%, depending on the city, said Tracy Hadden Loh, a fellow at the Brookings Institution who focuses on real estate. “The challenge is that nobody has figured out how to reuse those massive, million-square-foot, ’80sera office buildings,” she said.
The most common strategy is to convert office towers into apartments or condos. Such conversions increased a record 43% nationwide in 2021, creating 11,090 new apartments, according to research from RentCafe, a division of real estate software firm Yardi Systems.
Renovating offices is often prohibitively expensive and stymied by building code requirements.
That hasn’t stopped some startups from trying to find new business models for vacant space. In Seattle and elsewhere, business leaders are experimenting with retail to bring new tenants into downtown spaces, and cities are studying plans to ease residential conversions. Silofit, a Canadian company that turns former office space into private gyms for personal trainers and their clients, has recently expanded its concept to Miami. And a handful of education startups and charter schools, such as Acton Academy in the Bay Area, have experimented with operating in renovated commercial space. Downtown office space also has great value for the logistics industry.
For example, Neighbor, a peer-to-peer self-storage concept that helps building owners cash in on unused space, has seen significant growth.
Another alternative is to change the way office space is set up and leased, a departure from the traditional model of a large space with a 10-year lease, which has fallen out of favor.
Codi, a San Francisco startup, offers what amounts to a timeshare for office tenants by pairing small companies with hybrid schedules so they use the same space on alternate days during a typical week.
“The workplace is going through a massive shift, and companies more than ever value ease and speed and flexibility,” said Codi’s CEO, Christelle Rohaut.