With long-term forecasts calling for structurally higher office vacancy, owners of properties that don’t appeal to modern tenants may want to explore office conversions today.
Owners of older office buildings without the amenities that today’s tenants need to lure their employees back to the workplace may be better off converting them to other uses.
The pandemic-induced rise of remote work has lowered office demand and occupancy rates. The national office vacancy rate reached a nearly 30-year-high of 17.1% in Q3 2022 and sublease availabilities are rising as occupiers attempt to shed underutilized office space. A surplus of available office space will continue to weigh on fundamentals for the foreseeable future.
Today’s office tenants expect more of their buildings in terms of quality, design, location and sustainability. Many are reducing their total space and moving into the most modern, amenity-laden buildings. Class A space built since 2010 accounts for only 9.2% of the nation’s total office inventory and not all that space can be truly defined a quality building. Older buildings with outdated configurations and designs are being left behind. What happens to them? Owners can either keep the building as is and further lower rents to attract tenants, sell the property likely at a discount to better-situated buildings or use the structure or land for a different purpose through demolition or conversion.
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