Much effort has been made to answer the question that has been on everyone’s mind for the past three years: what do we do with empty office buildings? The most popular solution was to convert vacant office space into living space. The idea has become a reality in places like New York City, Washington, DC and Calgary, where officials are helping to streamline the process through incentives and programs. In view of the growing real estate crisis, that makes sense. But “office-to-residential” is not a new concept. In Manhattan, for example, in the years following the September 11 attacks, dozens of lower Manhattan buildings were converted into housing units. The largest transformation in the country is currently being developed by GFP Real Estate and Metro Loft in Manhattan’s Financial District, where the former headquarters of the New York Daily News will be converted into more than 1,300 high-end luxury condominiums.
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While converting office buildings into much-needed housing seems like the simple solution, it can be complicated and costly. Office buildings typically have larger floor panels that don’t let in much natural light and air, and building systems such as HVAC and plumbing would likely need an overhaul to accommodate dwelling units. In an analysis of 300 office buildings across North America, global design firm Gensler found that only 30 percent of the buildings would be suitable for conversion into residential buildings. The company’s analysis also yielded a curious finding: features that were considered undesirable in an office environment were actually desirable features in an apartment building. For example, many Class C buildings have a floor height of about 12 feet, which is considered extremely low for an office today. But anything over 9 feet in a residential building is considered a luxury feature.
As office to residential conversions become more popular as a good way to repurpose vacant space, different types of use are also being considered. However, it may take some time before office remodeling is really done on a large scale. Daniel Colombini, director of New York City-based consulting and engineering firm Goldman Copeland, which focuses on modernizing and improving the infrastructure of existing buildings, said large-scale repurposing of vacant offices is a slow-moving issue. Traditional office leases typically run for 10 years, and with the pandemic now three years behind us, there is still a lot of space that is not yet ready to be leased. “Things are changing and the carrot and stick will realign in the real estate world,” Colombini said. “It’s happening, but it’s going to happen very slowly.”
Hotels
Similar to converting an apartment building, converting an office building into a hotel requires significant modifications that can end up being costly. Plumbing and HVAC systems would need an overhaul, and developers would need to add things like kitchens and bathrooms. Switching to hotel use could also require a change in zoning. Nevertheless, office-to-hotel conversions are taking place again and again. Since 2016, CBRE has tracked 45 office to hotel conversions, with a further seven in progress and seven planned. Most conversions take place in downtown areas that are within walking distance to shops, restaurants, entertainment venues, and major employers. In April it was announced that the owners of New York’s famous Rockefeller Center had struck a deal to open a luxury hotel on ten floors of empty office space. Hotel operator Aspen Hospitality plans to open the 130-room hotel in 2026.
laboratory room
The life sciences sector has boomed over the last decade, which has led to huge demand for laboratory and research and development space. Even before the pandemic, some office owners were converting their offices into labs, and this is even more common lately. In Boston, the nation’s largest life sciences market, offices have often been converted into labs in recent years. In San Francisco, another major life sciences hub, a vacant office building formerly the headquarters of clothing retailer Old Navy was recently purchased by developer DivcoWest, who plans to convert it into laboratory space. A CBRE report found that conversions of office buildings into laboratories increased 49 percent in the country’s 12 largest life sciences markets in 2021. said CBRE’s Matt Gardner. According to CBRE, the cost of outfitting a lab space with the type of plumbing, ventilation, and other special considerations that this type of space requires can be three times the cost of standard office space, but the rents that lab space fetches appear to be adequate to make it worthwhile for real estate owners and investors.
self storage
Operators in the self-storage industry were considering converting empty offices into new self-storage facilities long before the pandemic began. For example, Bethesda, Maryland-based Washington Property Co. converted an 82,000-square-foot office building in Rockville, Maryland into a CubeSmart self-storage facility. Especially in suburban areas, vacant office buildings were considered prime candidates for the shift to self-storage. Utilization is seen as a cheaper and shorter-term option than conversion to housing. The conversions took place in densely populated locations where many higher-income tenants needed storage space. It’s not easy to find concrete data on how many office-to-self-storage transitions are actually taking place, but many developers across the country are certainly considering it.
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Retail, restaurants and event spaces
In some cases, an office owner or developer may wish to change the use of only a portion of an office building, such as the lower floors of a property. A partial conversion transforms an office building into a mixed-use development and can include retail, restaurants and event space on the lower floors. There is no need for existing office tenants to move during construction and then take advantage of the additional amenities of the new concessions. In Manhattan, the Rudin family and Thomson Reuters added Touro College to 3 Times Square, a trophy office tower in the heart of the Times Square area. The college agreed to a 32-year lease on a 23,000-square-foot campus and will have a private entrance and lobby for its students, faculty and staff. The building’s owners refinanced the building for $415 million last June to help with the partial remodeling.
Property owners have many choices when deciding what to do with vacant office space, and with the current trends toward remote and hybrid working, they need to explore those options sooner rather than later. When making these decisions, the ever-increasing importance of CO2 emissions must also be taken into account. Converting empty offices to other building uses, whatever that may be, will likely have a lower carbon footprint than tearing down a building and starting a new project from scratch. “What we want is building reuse, period,” Colombini said. “We hate when sound buildings are demolished when buildings are abandoned.” Finding better uses of office space not only benefits the building owner, but also the surrounding neighborhood, and that will have an impact on the local economy and property value .
