Could empty office buildings bring down home prices?
What if I told you that some of the country’s most desirable real estate locations are currently sitting mostly unutilized? What if I also told you that these places could be a key to opening up more opportunities for homebuyers, senior citizens, etc. More opportunities mean more housing. More housing means more supply. More supply means lower prices.
Introducing the mostly abandoned office parks across the country!
Thanks to COVID, numerous office buildings located in urban downtowns and prime suburban locations are sitting empty, with employees opting to continue to work remotely. In fact, as of the end of August, offices nationally had only 43% occupancy rates. Whoa!
Some high-profile companies, such as Apple, are requiring workers to return to the office at least three days a week, whereas other companies are allowing their workers to remain fully remote if they choose. The effect is a downsizing (or at least a hard look) at office space across the country. Think about it, why would these companies continue to pay for space they aren’t fully utilizing or eve there at all? They have to pay to heat and cool the space, clean it, provide electricity, technicians, office supplies, machinery, etc. It’s sometimes unnecessary in this post-pandemic new normal we are in.
So this begs the question: What are we to do with all this space? Many have started to answer this question in the form of developments that contain a combo of housing, entertainment, and dining. Some buildings have been retrofitted into schools, senior centers, or other community spaces. Last year, more than 8,000 apartment units were estimated to have been created from former office buildings, with more than 13,000 units expected to become available this year. The majority of these units are in Philadelphia (my hometown); Washington, D.C; Los Angeles and Cleveland.
Sounds like a great solution, right? Sounds like it would be a major growth sector if the office space continues to languish. There’s just one major problem. Businesses generally lock in office leases for anywhere from five to more than 20 years. So a firm that signed a new lease or recently renewed a lease before the pandemic may be locked in for nearly two more decades. Ouch.
Another hurdle with trying to repurpose these types of buildings into housing is that these areas tend to have higher costs, a lot more regulatory barriers, and long timelines for getting projects done. The cost of conversion coupled with the challenges of high labor and supply chain problems, on top of zoning changes that would be required, we are looking at a number of years until completion. As we know, the wheels of government and bureaucracy are slow to turn…
But with these largely vacant office buildings already being equipped with sewage, parking, loading docks, etc., it would be insane to NOT repurpose these spaces into living quarters. Something else to consider are the vast parking lots which wouldn’t be needed any longer since you don’t have a bunch of workers showing up every day.
Perhaps a pool complex? Tot lot? Park?
Hmmmm … interesting. Starting to sound like a great place to live!