‘Working from home’ might someday mean working from your old high-rise office building

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Published Date 7/24/2023

It’s no secret. In fact, it’s a problem. Not enough housing and too much office space.

According to CNBC’s Carols Waters, mayors in cities across the U.S. want to loosen rules that can slow the pace of office-to-residential conversions — some of it in the form of generous tax abatements to developers who build new housing.

“We have a great opportunity to change the uses in the downtown,” said Washington, DC, Mayor Muriel Bowser at a December 2022 news conference in support of her housing budget proposals. But not all those at the top think it’s more than a budget gimmick — something that need not be subsidized by a given city.

Cities like Philadelphia have previously embraced these policies to revitalize their downtowns, according to Waters. “In Philadelphia, homeowners and investors received more than $1 billion in tax breaks for their renovation projects,” he says, adding that a small collective of developers have taken on this challenging slice of the real estate business.

And then there is the West coast, where Jason Ward, a RAND Corporation economist who has studied the feasibility of commercial-to-residential conversions also pointed to an added advantage, particularly in a market like San Francisco: less community opposition.

“It’s a lesser issue than we’re going to knock down these single-family homes and build a 60-unit building,” Ward said. “It’s already there, it usually has parking and looks more or less the same as before.”

An article in the San Francisco Standard points out how developers of The Pacific in Pacific Heights were able to build a 76-unit condo building in a neighborhood with a history of anti-development activism by adapting a former medical office building.

Gutting a building and rebuilding the inside as housing is expensive, however, especially in San Francisco and especially while construction costs are high. Evidently, asking rents for downtown commercial leases have dropped around 15% from pre-pandemic peaks. The only reason that they haven’t dipped further is because of the relatively long lease terms signed by commercial tenants and market optimism that the return to office will continue at a gradual pace. As it stands, the city and the market aren't convinced that empty offices downtown are here to stay, saying that just because it worked for a year or two is no guarantee that it will last.

Waters says many experts believe local governments will alter zoning laws and building codes to make these conversions easier over the years. Empty office buildings are just the tip of the iceberg for these changes.

CNBC, SanFranciscoStandard, TBWS

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