I keep hearing that empty office buildings are an economic time bomb. I keep hearing that housing inventory is low which is why house prices are high. Why can’t we convert offices to homes?
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Often there are zoning or planning restrictions on what a building can be used for. Residential buildings have different requirements, for fire prevention and fire evacuation, as well as residential areas requiring services like schools, hospitals and shops in the local area as well as parking.
They can be, and will be, but it takes time and money. The bomb has to in essence “go off” for the properties to be sold at a low enough price that converting makes sense.
Apparently a lot of the cheap money buildings of the past few years are due to hit their balloon payments in the next year or so. Most of them will supposedly be sold for pennies or turned over to the bank. Maybe we’ll see more movement in that direction once that hits.
It’s not impossible to do this in the long run, but it will be expensive.
Office buildings are not up to modern habitation codes. Aside from the obvious stuff (putting up interior walls, installing appliances, etc.) there are some things baked into the building that will be hard to change. Plumbing is typically much more centralized in office buildings than it would need to be for homes, which will each need at a minimum water access in the kitchen and bathroom. Office buildings also have much more interior space that barely get natural light and would get none once those interior walls are put up. This is why apartment buildings tend to either be narrower or have bends/cutouts.
Then there are the economic considerations. Highrise buildings are expensive and inefficient. They only exist in downtown areas because companies value having a central location *a lot* and they were willing to pay for it. Do apartment seekers value those downtown locations just as much? Maybe, but people who could pay for that space aren’t exactly the ones being crunched by the housing shortage.
So for the real estate companies that own these under-used downtown office buildings, it becomes a dilemma with no good options. Sit vacant hoping that work-from-home is just a fad, or undertake expensive and time-consuming renovations to convert to residential and probably end up collecting lower rents. Right now the pressure is low enough that these owners are preferring to wait and hope.
While zoning is a big issue, the root cause is money.
If you built a $100M office building and borrow the money, you need rent that covers the mortgage payments and operating costs. With office space at $100/sf per month, the math checks out.
Alas, with housing rents at $10/sf per month, you can’t afford to pay the mortgage. The bank forecloses, and there is a giant mess.
To do conversions, which many locales are doing, the bank has to write off a big loss, as the building is now a $10M condo building. That’s a big obstacle, as banks don’t like to take losses, and an empty office building can still be a “$100M asset” on the books for an audit or two.
There are conversions ongoing. The City of Calgary is doing this right now. But it is a long process with a ton of work required to bring them up to residential code. It’s also really tight making this economical for private companies. In Calgary this is really only happening as the City is providing huge grants to do the work.
Zoning laws: existing commercial office space isn’t on land approved for residential use.
Many office buildings may also lack parking required for residential use, and have a lot of interior space that isn’t really valuable for housing.
Just think about windows. Who wants to live in a place without windows?
Now where are the windows in a commercial building? On the outer edges. So who’s gonna wanna live in the middle of the building?
Or think if plumbing. Bathrooms on each floor are generally above each other along the height. But in a residential building you need plumbing to every unit. Most people don’t have a sink at their desk.
It’s possible but often it’s not worth the cost. Though there are some companies working on it.
You can but it is very expensive and time-consuming. Just to start an office–>apartment conversion, they’ll need to:
* Redo the HVAC so that each unit can control their own temperature.
* Redo the plumbing because offices tend to have communal toilets and no showers, which obviously doesn’t work for apartments.
* Redo the electricity so that each unit can control their own electrical system, e.g. breaker box in each apartment, and has sufficient electricity for power-intensive appliances (washer/dryers, refrigerators, etc.)
* Redo the actual walls/rooms to accommodate residences.
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We can, sometimes… but there are issues that make doing so difficult/expensive.
For one, the floorplate of many office buildings has way too much interior space relative to outer walls. It’s one thing to have massive open floors of cubicles, but you can’t build apartments without windows, and most people don’t want skinny slivers of apartments with a long corridor of windowless bedrooms and only a living room with a window.
And there are much greater needs for plumbing, electrical, gas, etc. infrastructure for apartments vs. office. Instead of a kitchen or two, and 2 communal restrooms, you’d need dozens of kitchens and separate bathroom.
Windows are another issue, as many office don’t have operable windows but residential housing needs for fire code and people want for fresh air.
Then there are the issues of location… do people want to live where empty office buildings are located? Perhaps in Manhattan, San Francisco, or other dense cities. But do people want to live in surrounded by a sea of asphalt across from Home Depot in suburban areas?
So it can be done, but it’s typically best for architecturally interesting buildings in high demand areas, with smaller floorplates and due to cost they tend to be very high end. As an example, look at the Tribune Tower in Chicago that was formerly home to the city’s biggest newspaper and is now selling high end condos. Or the Mongomery Wards HQ building (also in Chicago) that was converted about 15 years ago.
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