What To Do With All The Empty Offices In U.S. Cities | CNBC Marathon
CNBC・26 minutes read
San Francisco is experiencing a significant increase in office vacancies, leading to challenges in the city's budget and a shift towards remote work. Converting empty offices into apartments is being considered as a potential solution to the housing crisis and office space surplus.
Insights
- The pandemic-induced shift to remote work has left many city office spaces vacant, with San Francisco and Manhattan facing significant challenges due to the decreased demand, impacting tax revenues and financial stability.
- Converting empty offices into residential spaces presents complex challenges, including structural modifications, zoning regulations, and high costs, but could offer a long-term solution to housing shortages and urban revitalization, as seen in successful cases like Calgary.
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Recent questions
How has the pandemic affected office spaces?
The pandemic led to a significant decrease in office demand as many workers transitioned to remote work, resulting in a surplus of vacant office spaces in cities like San Francisco and Manhattan. Companies downsized and did not renew leases, causing concerns for investors and impacting government finances due to reduced tax revenues from office spaces.
What are the challenges of converting offices into apartments?
Converting offices into apartments involves various challenges such as ensuring access to light and air, plumbing considerations, and expensive structural modifications. Not all office buildings are suitable for conversion, and zoning regulations play a crucial role in determining the feasibility of such projects, with some cities incentivizing developers to undertake these conversions.
How are cities addressing the issue of empty office spaces?
Some cities like Washington, D.C. and Philadelphia are incentivizing developers to convert empty office buildings into housing to address the housing crisis and revitalize urban areas. This approach aims to repurpose surplus office spaces into residential units, potentially offering a long-term solution to the housing and office vacancy issues faced by cities like San Francisco.
What impact do empty office spaces have on government finances?
Empty office spaces have a significant impact on government finances, as cities like New York City generate billions of dollars in taxes annually from office spaces. The decrease in office demand and vacancies result in reduced tax revenues, leading to budget deficits and financial challenges for local governments.
How do remote work trends affect urban areas?
Remote work trends have led to a decrease in demand for office spaces, causing companies to downsize and not renew leases, resulting in reduced revenues for office owners and cities. This shift in work dynamics has long-term implications on tax revenues, property values, and the overall economic health of urban areas, prompting the need for alternative uses for surplus office spaces to revitalize cities.
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Summary
00:00
"Empty Offices Spark Housing Conversion Debate"
- San Francisco faces an empty office problem, with 27.1 million ft² of vacant office space in the downtown area.
- The pandemic led to many office workers transitioning to remote work, resulting in reduced office demand and downsizing by companies.
- Suggestions to convert office buildings into apartments are complicated, as not all buildings are suitable for conversion.
- American offices, including 94 million ft² in Manhattan, are sitting empty, causing concerns for investors like Blackstone and Brookfield.
- Some cities are incentivizing developers to convert office buildings into housing, with Washington, D.C. and Philadelphia leading the trend.
- Converting offices into apartments involves challenges like ensuring access to light and air, plumbing considerations, and expensive structural modifications.
- Converted apartments tend to be expensive, with single bedrooms in Philadelphia's Poplar building renting for $2,000 a month.
- Office vacancies impact government finances, with New York City offices generating $6 billion in taxes annually.
- Zoning regulations play a crucial role in determining the feasibility of office-to-apartment conversions, with New York facing challenges due to state-level zoning.
- The US needs about 7 million more affordable homes, with critics questioning the necessity of tax breaks for developers and supporters hoping for a housing market stabilization.
14:00
San Francisco's Office Vacancy Crisis and Solutions
- San Francisco's office vacancy rate was around 4% before the pandemic, but it has significantly increased since then.
- The city is facing a budget deficit of over $700 million due to challenges related to empty office spaces.
- San Francisco has transitioned into a work-from-home capital, with 46% of workers remote in 2021, up from 7% in 2019.
- The city is currently experiencing its highest office vacancy rates in nearly 30 years, leading many companies to not renew leases.
- San Francisco aims to address its housing crisis by building 82,000 units by 2031, requiring over 10,000 units annually starting in 2023.
- Office to residential conversions could be a long-term solution to the housing and office vacancy issues in San Francisco.
- Calgary, Canada, has successfully converted office buildings to residential spaces, increasing downtown population by 24%.
- Developers find office to residential conversions to be about 30% cheaper than constructing new buildings from scratch.
- San Francisco's high construction costs and strict housing policies hinder developers from building more housing.
- Lowering affordable housing requirements could make housing projects more feasible and desirable in San Francisco.
26:56
"Urban Doom Loop: Remote Work Impact"
- Columbia Business School professor Stan Van Neuerburg coined the term "urban doom loop" to describe the negative impact of remote work on cities.
- Remote work during the pandemic led to a decrease in demand for office space, causing companies to downsize and not renew leases, resulting in reduced revenues for office owners and cities.
- Population outflows from cities due to remote work have long-term implications on tax revenues, with property tax revenue in New York City making up a significant portion of the budget.
- Landlords are facing financial challenges as property values decline, leading to difficulties in refinancing loans and potential defaults, impacting regional banks and the credit market.
- To address the excess office space issue, cities need to consider repurposing buildings for alternative uses like apartments, medical offices, entertainment spaces, or hotels to revitalize urban areas.
