Doing Their Homework

What it takes to convert office buildings into housing

- Damien Martin

The U.S. has had a housing shortage since at least 2007. The crisis has grown to the point that the country is 3.8 million housing units short. Meanwhile, office vacancy stands near 20%, and almost a quarter of the office buildings in the U.S. are projected to be empty by 2026.

At first blush, it would seem there's an easy solution to both problems: Convert empty office space into housing. There's a lot more to it than that, but conversions really could help solve both problems and cities and states around the country are giving it a shot.

Two Birds, One Stone

The trends show office vacancies and housing shortages increasing. The percentage of U.S. workers working from home essentially tripled during the pandemic. At the start of 2024, about 13% work remotely full-time, and 30% work hybrid schedules. By next year, more than 20% of American workers will be fully remote. Office vacancy is at its highest rate since 2000.

"We expect it to rise even more in the next decade, because right now, a lot of office tenants are still locked into their contracts," Goldman Sachs research economist Elsie Peng said. "Their lower demand hasn't been fully reflected in the vacancy rate yet. As their leases expire, the vacancy rates will rise."

By the end of the decade, Cushman & Wakefield estimates, there will be more than 330 million square feet of vacant office space, 55% higher than prepandemic levels.

With that many people out of the office, companies will need less space. Commercial real estate is already feeling the squeeze, with building owners facing $5.8 trillion in outstanding debt. Banks have been giving property owners extra time to sort out their plans, but with interest rates high it's been hard for those owners to refinance.