Office space is now being razed or converted faster than it's being built — for the first time in 25 years
While return-to-office mandates may be the talk of the town, office conversions and demolitions reign supreme.
More office space is being demolished or converted than is being built through new construction this year. That's according to CBRE Group data reported by CNBC. This marks the first time the scales have shifted in at least 25 years, according to the commercial real estate services firm, demonstrating the lasting and seismic impact of remote work culture in the wake of COVID-19.
The inflection point is clear — 23.3 million square feet of office space across the largest 58 US markets will be demolished or converted by the end of 2025, CNBC reported. Just 12.7 million square feet of new office construction will be completed.
5 5 Times Square was left nearly vacant by its former tenant, the auditing firm Ernst & Young. Now it's destined for a residential makeover.
Bloomberg via Getty Images
5 The former facade of the since-converted 25 Water St. The office building slowly emptied as JPMorgan Chase, the National Enquirer and the New York Daily News departed.
Stefano Giovannini
'We have more office space than we need, and most of the office space that's being demolished is functionally obsolete,' Barry DiRaimondo, CEO of the West Coast-based commercial real estate developer SteelWave, told The Post. 'So I think it's probably good all the way around.'
Widespread pressure by major companies to get employees back in their cubicles, especially in New York City, gave a recent boost to office-leasing activity. More office space is now being occupied than vacated, CNBC reported, but office vacancies continue to hover around record highs at 19%.
There are significant silver linings to the decline of office construction.
Steven Shoumer, a partner at Blank Rome and co-chair of the firm's real estate group, told The Post in an email that shrinking supplies of new offices will help to stabilize rents as return-to-office demands grow.
'However, it will be interesting to see if office space availability gets tighter with vacancy rates lowering in the coming years, and consequently causes office rents to rise (which would also be good for building owners),' Shoumer wrote.
Luxury, 'Class A' office owners and investors will particularly benefit from a thinned-out field of competitors, while well-positioned developers can be the star of the show with office-to-residential conversions.
5 Plans are being cooked up for the conversion of a near-empty office building along Flatbush Avenue to turn into Brooklyn's second-tallest residential tower.
Binyan Studio and TenBerke Architects
5 One Wall Street, once the largest city's office-to-condo conversion, has since gained several converted FiDi neighbors.
Evan Joseph Photography
5 A rendering of the converted interiors of 25 Water St.
Streetsense
Developers have primed 85 million square feet of former office space for conversions over the next few years, CNBC added.
New York City is leading the pack in office-to-apartment conversions, according to RentCafe, with more than 8,000 new apartments expected from repurposed office buildings projected as of February. That number is only increasing with new conversion plans popping up at neglected addresses every few weeks, from Downtown Brooklyn's 395 Flatbush Ave. to 5 Times Square.
Successful conversions across the city are racking up. FiDi's 25 Water St. — the former home of JPMorgan Chase, the National Enquirer and the New York Daily News — set a record this year as the largest office-to-resi conversion in the country. There's also Pearl House in the Seaport District, the massive former-bank One Wall Street and ex-Goldman Sachs HQ 55 Broad.
Less office construction can also be a boon to the average Joe, too. Although shrinking office footprints might not get folks out of their morning commute into Midtown, the conversion of other, obsolete offices will offer a boost to housing supplies and cheaper rents.
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