[Real Beat] Changing Work Styles Transform Downtown US Offices into Housing and Gyms

How Changes in the Workplace Have Transformed Cities②

Editor's Note[Jjinbit] is a shortened form of ‘Jung Hyunjin's Business Trend’ and ‘Real Business Trend.’ This segment showcases trends in ‘work’ such as organizational culture and HR systems changes after the pandemic. Based on analyses from foreign media and major overseas institutions that have not received much attention so far, we will deliver fresh and differentiated information and perspectives.

[Asia Economy Reporter Jung Hyunjin] "Office buildings need to be converted into residential use. The buildings are gradually becoming eyesores. They need to be fixed."

Howard Lutnick, Chairman and CEO of the major U.S. investment bank Cantor Fitzgerald, said this during a panel discussion at the World Economic Forum (WEF, Davos Forum) held in Davos, Switzerland on the 18th (local time). He made this remark considering that the number of office workers coming to offices has significantly decreased due to the spread of remote work and hybrid work styles amid the COVID-19 pandemic, leaving buildings empty and causing the value of commercial real estate to plummet.

[Image source=Reuters Yonhap News]

Christian Ulbrich, Chairman of the global real estate group JLL, who was present at the discussion, also pointed out, "Buildings must be repurposed in some way. Otherwise, they will remain vacant and be demolished." According to foreign media, the panelists raised their voices that since converting underutilized office buildings into residential use is financially burdensome, public institutions and others should provide financial support, which would help cities that have lost vitality due to fewer office workers regain their vibrancy.

◆ Cities Take Action... "Offices into Housing"

Changes to vacant office buildings have already begun in the U.S. Spaces formerly used as offices are being converted into various uses, including housing, gyms, and movie sets. According to a report released by global real estate company CBRE in December last year, projects converting offices to other uses averaged 39 per year from 2017 to 2021. However, in 2022, 42 office conversion projects were completed, 21 were ongoing, and this year, 85 projects are underway with 14 planned.

Cities with high office vacancy rates such as New York City and San Francisco are actively taking steps. Given the already scarce housing space in city centers, converting empty office spaces into housing is seen as a way to utilize commercial real estate and increase housing supply.

New York City announced on the 9th that it encourages converting underutilized offices into housing. The city plans to ease regulations related to converting office buildings built before December 31, 1990, into residential use. New York City Mayor Eric Adams said, "There is an urgent need for housing, and there is an opportunity provided by relatively underused office space."

[Image source=Reuters Yonhap News]

San Francisco, which recorded the highest office vacancy rate ever, is also focusing on converting office space into housing. According to CNBC, Democratic State Assemblyman Matt Haney said, "We cannot leave empty buildings as they are. This is not good for our city center. They become complete trash," adding, "The clear point is that we can look at this to solve our housing crisis."

◆ "We Need to Figure Out How to Reuse Offices"

However, some are converting office buildings into uses other than residential spaces. This is because office buildings are considered unsuitable for residential use. According to a report by The New York Times (NYT) citing Bernstein Management, only one out of 20 office buildings in Washington D.C. is suitable for conversion into residential use. Moody's analysis shows that about 3% of New York offices are convertible to residential use.

NYT reported, "Converting offices into housing is extremely costly and there are many building code requirements, making compliance difficult."

Accordingly, vacant office spaces nationwide have been transformed since last year into movie sets, warehouses, gyms, and more. According to reports, Backlot, a New York-based provider of filming locations for movies and TV shows, is leasing vacant office spaces for filming. Canadian company Silofit rents out converted vacant office spaces as personal workout areas in Miami and other locations. NYT also reported that some companies use these spaces as personal storage, which is scarce in city centers.

Tracy Haydon, a researcher at the Brookings Institution think tank, said, "Depending on the city, the surplus office space ranges from 20 to 40%. The problem we face now is that no one has figured out how to reuse this enormous amount of 1980s office space." She added, "Functionally, we need to figure out how to prevent these buildings, which have become immediately useless, from losing their value."