At least everyone agrees there’s a problem.
Americans’ preference for commute-free employment has yielded a surfeit of office vacancy. The phenomenon is a calamity for lessors plagued by plummeting income. Earlier this month, The Seattle Times reported that one of the city’s “most aggressive, and tenacious, developers” has “defaulted on a $240 million loan that could see two of his most valuable downtown projects handed back to creditors.”
But the work-from-home revolution’s fallout impacts more than landlords. An article recently published in the peer-reviewed journal Cities named “the devaluing of urban office property resulting in lower … property tax revenues” and “declines in daily urban office worker foot traffic negatively impacting local retail activity” as additional concerns.
In the eyes of many activists and politicians, there’s a no-brainer response to the challenge of unoccupied offices: Turn them into housing.
Adaptive reuse is not a new concept. But in an era of too few residential units and too much office space, the case for a switch appears glaringly obvious. A 2022 analysis by the NAIOP Research Foundation described landlords’ reasoning:
From the cost perspective, conversions can be less expensive than new construction, especially when redevelopment of a property is the alternative. Demolition costs are avoided, and labor and material costs are lower. From the time perspective, conversions bring space to market much sooner than new construction. … In addition, market risk is lower because the development period is much shorter.
Driven by piqued private-sector interest, cities from coast to coast are implementing policies that foster office-to-residential transformations. Seattle. San Francisco. San Diego. Denver. Fort Worth. Chicago. Washington, D.C. New York. In October 2023, the Biden administration helpfully provided a 54-page guidebook detailing “the wide array of federal programs, loans, grants, guarantees, and tax incentives available to support commercial to residential conversions.”
Unfortunately, adaptive-reuse enthusiasts of all types are prone to irrational exuberance. The shift-offices-to-housing appeal makes perfect sense in theory, but in practice, obstacles are manifold. Referring specifically to offices located downtown, Los Angeles-based architect Greg Lyon warned that not all “buildings lend themselves structurally to residential use.”
The tallest skyscrapers, he noted, “boast large floorplates, column supports and massive floor-to-ceiling windows that can turn into structural nightmares when it comes to redevelopment.” Renovations to create “usable multifamily properties” cost piles of money, he wrote, and often, “these conversions don’t pencil out.” Miami University’s John Weigand believes that “only about 20% to 30%” of “older commercial buildings” can be “profitably converted” to housing.
Limited demand is another encumbrance. Moving into a former office building appeals to some – particularly young, adult singles. Families? Not so much. The polling data are quite clear – a freestanding house in the suburbs is as popular as ever for folks looking to settle down. Throw in the threats of crime, homelessness and parking complications, and plenty of aspiring homeowners will pass.
The Pioneer Institute’s Andrew Mikula highlighted a final problem: the fiscal burden. Boston’s “Downtown Office to Residential Conversion Pilot Program” bestows “property tax breaks of up to 75% of the assessed value for 29 years to incentivize property owners to convert … office space to apartments or condos.” And the state provided in “$15 million in direct subsidies, and up to $215,000 per unit.” Add in the far-from-trivial fact that Beantown imposes a “much lower” tax rate on residences, and the “program is likely to be very expensive,” Mikula argued, at a time when the city faces “impending budget woes.”
So office-to-residential conversion is a bad idea? Not at all. Where the revamps make economic sense, and comply with healthy and safety regulations, let ‘em rip. But local, state, and federal policymakers should be adaptive-reuse agnostics. There are lots of ways to repurpose empty office buildings.
For example, manufacturing. Employment in the sector has climbed back to its pre-lockdown peak, and for a number of reasons the industry’s future looks bright. According to the Urban Manufacturing Alliance, whereas factory output was once dominated by “mass producers with hundreds of employees” now the trend is toward “masses of small and medium-sized firms,” many of which “have honed high value-added production processes that leverage industrial design and product customization to gain a competitive edge.”
And environmental worries are increasingly unfounded. The smokestack days are long gone – a 2018 study by two University of California, Berkeley, economists found that between “1990 and 2008, emissions of the most common air pollutants from US manufacturing fell by 60%, even as real U.S. manufacturing output grew substantially.”
Author Rachel Slade believes that Boston’s “largely empty downtown buildings with their substantial floor plates are perfect for supporting small light-industrial and boutique manufacturers of the modern era, which tend to need around 5,000 square feet each.” The newer properties “have deep ceiling plenums to support all manner of power, data and communication lines,” and “the older building stock, especially what was constructed before the Depression, features high ceilings, useful for machines that need a little more height.”
If manufacturing isn’t a fit, why not agriculture? Don’t laugh. “Vertical farming” may sound farfetched, but it could prove to be viable. Last year, Scripps News reported that since indoor-growing facilities “often require fewer infrastructure changes,” they are “popping up in former commercial and office spaces in places like New York, Chicago and San Francisco.”
Millions of white-collar employees are working from home, for good. But the solution to barren office buildings isn’t more “public investment.” It’s lower taxes. Zoning reform. Speedier permitting. Reduced or eliminated fees. Public-safety enforcement. In other words, policies that make urban living better for everyone.
D. Dowd Muska is a researcher and writer who studies public policy from the limited-government perspective. A veteran of several think tanks, he writes a column and publishes other content at No Dowd About It.
