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Pressure grows to renovate more office buildings – The Ukiah Daily Journal

Nowadays, almost nobody wants to build or buy office buildings anymore.

In downtown San Francisco, the sale of a vacant 16-story office building on lower Market Street in April brought in just $6.5 million, less than the price paid for hundreds of single-family homes in California last year. That was 90 percent less than the $65 million price the same building fetched in 2016, when it last changed hands.

In Los Angeles' Arts District, a rapidly developing trendy neighborhood east of downtown, plans to build a ten-story office building with numerous “creative spaces” were canceled a month later by New York real estate developer Tishman Speyer.

The same is true across the country, from Memphis to Maryland, from Manhattan to Market Street, where commercial real estate firm CBRE recently released a preliminary report showing that San Francisco's office vacancy rate is 36.6 percent, up about one percent from the end of last year.

Cities like Fresno and San Diego don't have quite as high vacancy rates, but vacant or mostly vacant properties are still plentiful throughout California and the country.

Not even real estate investment trusts (REITs) want to buy more office towers and many are trying to get rid of their current holdings.

The reason for this is the lockdowns imposed at the beginning of the Corona pandemic. Millions of employees had to move to new workspaces in their own homes, while hundreds of thousands were able to move to cheaper quarters far away from city centers, where they previously had to pay high rents for their presence in the offices.

When some employers required their employees to return to the office at least partially earlier this year, a wave of resignations occurred. It turns out that employees enjoy being at home, away from the prying eyes and constant demands of their bosses. This has also led to new dynamics in the labor market.

All of this creates enormous financial pressure to convert much of the current office space into residential units. If REITs can't generate rental income on their properties but still have to make payments to banks and other lenders, they'll have to find another way to make a profit on the buildings they own.

So a movement to transform office buildings – which this column predicted back in early 2020 – is underway. But it is not moving fast enough.

Billions of square feet of office space currently lie idle and could be converted into apartments and condos of all shapes and sizes. The lower floors, where street noise is omnipresent, could be home to affordable housing, and far above, expensive penthouses, which are spared from most of the city's noise pollution and offer breathtaking views.

But so far only hundreds of thousands of square metres have been converted, leaving most of the vacant land unused and housing construction falling far short of the millions of square metres that state authorities say are needed.

After years of hesitation, Governor Gavin Newsom and California lawmakers passed a measure last year that paves the way for building permits to redevelop office towers, as well as abandoned big-box stores and their massive parking lots.

Yet only about 5,200 housing units were created through conversions in Los Angeles last year, and only an eighth as many in San Francisco. In places like Sacramento and Oakland, the numbers were even lower.

But this movement is both morally and financially necessary. Apartments in a converted office building sold at market rate should be far cheaper than apartments in a newly constructed tower. That's because construction and land costs are much lower in conversions than in new construction. Additionally, conversions face fewer legal challenges because they barely change the appearance and environmental impact of existing buildings.

So expect a boom in conversions soon, with the numbers multiplying at least tenfold in the next five years. This is what California needs, and whatever this state needs, its people have generally provided in more than 170 years of statehood.

E-mail Thomas Elias at [email protected]. His book, “The Burzynski Breakthrough, The Most Promising Cancer Treatment and the Government's Campaign to Squelch It,” is now available in its fourth paperback edition. For more of Elias' columns, visit www.californiafocus.net