Office Conversions Have Increased Every Year This Decade

U.S. office inventory is dropping as some buildings are converted to housing or other uses while others are demolished, according to CBRE data.

Joe Burns explains the trend in SMart Cities Dive. “Among the 58 markets CBRE tracked, it expects 12.8 million square feet of space to be converted to other uses this year and an additional 10.5 million square feet to be demolished. The firm estimates just 12.7 million square feet of new office supply.” Office conversions in the pipeline this year amount to 1.9 percent of total office inventory, and the number of conversion proposals has increased every year since 2020.

Older buildings, which can be less suitable for conversion, make up over half of demolitions and 35 percent of conversions. “Building size and location, rising construction costs, less labor availability and persistently high interest rates also factor into conversion or demolition decisions, adding further impediments, CBRE says.”

Conversions of office buildings to life science uses peaked during the pandemic, but have since dropped. Now, hotels make up the second most popular type of office conversion at 8 percent.

Cities with zoning reforms that support adaptive reuse are seeing high rates of conversions. “Manhattan currently has 10.3 million square feet of conversion space underway or planned, leading the nation, CBRE says,” in part due to ’City of Yes’ zoning reforms. San Francisco, where the office vacancy rate is 28.4 percent, recently created a downtown revitalization financing district to incentivize conversions.