The significant increase in vacant office space across the country was initially caused by the COVID-19 pandemic and continues due to the associated impact of hybrid work schedules. During the first quarter of 2023, office vacancy levels reached an all-time high, exceeding 20% compared to the last few decades. In many major metro areas, vacancy rates are hovering around 30%. While this number is already significant, it only represents vacant offices without an active lease. One-third of leases, all signed before the pandemic, will expire in 2026 and may well further exacerbate vacant office space in the United States. In fact, while the return to office work has steadily increased since the worst of COVID, in the top 10 metro areas of the U.S. the rate has, for now, plateaued at about 50% in-office time according to a Bloomberg study.

The Issue

Given the prevalence of remote and hybrid work schedules, many corporations are re-evaluating their office space requirements. Progressive companies are not only looking to reduce their overall office footprint but also to upgrade their remaining space. This "upgrade" includes enhancements around employee health and wellness, energy efficiency, and other factors that go beyond mere physical space, supporting an effective “hybrid office of the future” work environment.

Simultaneously and in stark contrast, the need for housing continues to rise. And as COVID restrictions/risks have waned, many people are returning to cities, resulting in high demand for urban housing. In fact, many large cities now experience multi-family vacancy rates below 2.4%, with New York City under 2%.

The Challenge of Converting Office to Multi-Family

The seemingly "easy" response to this situation is to transform vacant office spaces into multi-family housing. However, the cost of conversion is typically too high to make it a profitable venture based on the existing structure of most office spaces. While the changes required vary by project, there is extensive reconfiguration needed to create a suitable living environment. This includes walls, plumbing, electrical systems, HVAC, etc. in a redesign for multi-family living, as suggested by CBRE's North American Cost Consultancy. Conversion costs may range from $100 to $500 per square foot. Seismic requirements, especially in California, and the need for adequate airflow (in a curtain wall office structure) create significant challenges for such conversions as well. According to the leading architectural firm, Gensler, of the over 1,000 office buildings they have reviewed for potential conversion to multi-family housing, only 5 nationwide have progressed to a conversion. This sobering statistic implies that unless such conversions are subsidized through city budgets, the economics don't align for the vast majority of office buildings.

Despite the recent popularity of this topic, developers have been attempting to repurpose existing infrastructure for some time. Since 2000, only about 1% of the over 4 million multifamily projects completed have been conversions, underscoring the ongoing struggle to find practical space to convert. As the demand for multifamily housing has since risen, developers look to office spaces built before the 1980s - according to CBRE, these smaller buildings offer a more cost-effective conversion option, as they don't yield useless interior spaces lacking natural light, a requirement in housing units.

Proven Sucess

Closing the gap between vacant office space and housing shortages may become less challenging in some cities. According to CBRE's database, there are 219 buildings that are older, small, vacant, and located in downtown areas across the United States. Moreover, some local policymakers incentivize downtown revitalization efforts, making conversions more common in cities like Chicago, Boston, Washington, D.C., and New York.

Developers that have successfully converted office spaces turn to SWFcontract for window treatments knowing that our high quality, made-to-order products provide an excellent window covering solution. One project recently completed in Annandale, Virginia, called Skyline Center, swapped the former office’s aluminum blinds for over 5,000 solar shades. Residents will love the shade’s capabilities to reduce solar heat gain and glare, create privacy, and offer a luxury aesthetic. Similarly, Santander Tower in Dallas, Texas recently went from office skyscraper to high-rise apartments. Since acquiring the 50-story building in 2013, the owners at Woods Capital have already spent over $18 million on it, including a new lobby, outdoor spaces, a hotel at the top, and now 11 floors of apartment units just below. To aid in this dramatic renovation, SWFcontract solar shades were installed in the 228 units created. Ironically, with the new work-from-home culture we’ve adapted to, many tenants in both these buildings are expected to be working remotely from inside.

Conclusion

Converting vacant office space into multifamily housing units, while a hot topic, is realistically a very limited solution to a much larger housing need, until and unless cities re-allocate competing budget dollars to subsidize the effort. New builds do continue though at a brisk pace.

SWFcontract plays a significant role in the creation of safe and comfortable multifamily housing units, whether they're new builds or office conversions. Many of our shading systems seamlessly integrate into existing infrastructure, a perfect solution for conversions and renovations. Our systems also leave room for future upgrades, such as the ability to convert from manual to motorized. Additionally, our systems comply with modern health and safety standards and are unmatched in meeting various sustainability and material health certifications.

We're here to provide shading solutions that harmonize with the requirements of your space, whether it's a new build, renovation, or if you're fortunate enough to have found that elusive 'needle in a haystack’ office conversion opportunity.

Sources

The Rise and Fall of Office to Multi-family Conversions
Will Remote Works Ever Return to Office
What We Learned Assessing Office to Residential Conversions
Commercial Real Estate Crisis
Construction of Skyline Livework

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