The office market in the United States may see a wave of distress in the coming years as many approach maturing debt and struggle to find renters amid the work-from-home trend.
In response, experts predict there will be a wave of landlords launching fire sales, which means the urgent sale of a property at a significantly discounted price. Specifically, this could affect Class B office buildings, which are properties that struggle to attract tenants due to them being older and in need of renovations. At least 80% of Class B office towers are vacant.
A fire sale, in turn, may spark a conversion of office towers into residential housing, which may help boost housing affordability in the country.
"The banks are going to have to dispose of that real estate," Richard Barkham, chief global economist for CBRE, said in an interview with Business Insider.
"I think we'll see a wave of offices going back to banks. They'll be firesold and either demolished or converted," he continued.
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How Many Offices Could Be Converted?
Office towers account for 20% of all commercial real estate properties in the US. The worst-performing buildings account for 10% of the overall office supply, which equates to about 1.2 billion square feet, according to Yardi Matrix.
Current Office Conversions in the US
A record 55,300 offices are scheduled to be converted into residential units in 2024, per data from RentCafe. That is nearly 10,000 more than the office-to-apartment conversions in the pipeline in 2023 and more than double the number of conversions in 2022.
Of the 55,000 commercial real estate to be converted this year, 38% were office buildings. This made up the largest share of conversions.
By metro area, Washington, DC, has the highest office-to-apartment pipeline with 5,820. New York City follows with 5,215, and Dallas with 3,163.
It should be noted that converting offices into residential spaces is costly and difficult. In New York, some architects were forced to cut holes in skyscrapers to increase livable square footage. Some landlords of commercial properties are also spending billions to convert office spaces into residential units.
