Downtown Office-to-Multifamily Conversions are Not the Answer

By Greg Lyon

While the largely popular hybrid/remote office paradigm might be great for employers interested in attracting and retaining qualified workers, it’s less ideal for office building owners and landlords trying to retain quality tenants. With work-from-home and hybrid employees continuing to avoid commuting to their previous downtown office destinations, higher vacancies continue to plague office buildings, especially urban core, Class A “trophy” structures, as downtown office vacancy figures range from 30% to 50%.

So, what is the best course of action for optimizing these vacant downtown offices?

One commonly discussed solution to this issue is adaptive reuse – converting vacant downtown buildings into residential usage. Given the extreme challenges that this avenue presents, the more logical and productive answer is to keep that downtown office space as-is by encouraging professional services and businesses occupying outer-ring and suburban mid-rise older office buildings to lease that downtown Class A space. With the downtown offices occupied and the lower-rise suburban offices empty, there would be an opportunity to convert those older suburban office buildings into much-needed residential and mixed-use properties that pose significantly less structural challenges as part of the construction process.

Adaptive Re-Use: The Theory and Reality

The office-to-multifamily conversion strategy offers some advantages, at least in theory. It decreases empty office space and provides much-needed housing to meet the overwhelming demand. From there, the assumption is that as more residents lease up these newly created apartment buildings, buzzy retail, restaurants and entertainment tenants will follow. The ideal result would be a re-energized and revitalized urban core.

Now, here’s the reality of how this strategy would likely play out. The challenges of office-to-multifamily conversion are well-documented. Massive Class A office buildings with huge floorplates don’t lend themselves to residential usage, with Zoning serving as a central roadblock. Furthermore, current urban core amenities aren’t set up to serve residents who call downtown business centers “home”. The existing amenities are designed to service employees who spend their day and early evening downtown and then high tail it to the suburbs. Then, there’s the whole infrastructure problem. Downtown streets simply aren’t geared to handle high-density residential, and neither are sewer lines or power grids. The infrastructure concerns alone are immense enough to stop these conversion attempts in their tracks.

Finally, the changeover from downtown office space to residential use risks creating high-density bedroom communities versus vibrant, cultural downtown destinations that cities like Los Angeles have been thoughtfully cultivating for generations. With fewer companies operating in downtown buildings, residents will commute from their urban core residences to their workplaces in suburban, lower-density neighborhoods. This leaves urban cores vacant each day and drains the area of the daytime activity and commerce that enables urban neighborhoods to succeed and grow.

The Better Solution

A far better – and less costly – solution to empty downtown offices is to keep the assets as office buildings and provide incentives and encouragement for professional offices and businesses to lease that downtown space. Additionally, by directing resources toward improving public transportation and safety in downtown areas, we will gradually see these areas regain their pre-pandemic economic, cultural, and social vibrancy.

These professional companies might jump at the chance to add cachet to their brands by relocating from their older structures to a trophy asset with a downtown address. Many businesses – financial firms, smaller law offices, architects and consultants – operate from Class B, mid-rise buildings on the edge of urban cores or inner-ring suburbs.

These older buildings lend themselves to adaptive reuse better than their massive Class A counterparts. The floor plates are smaller, the infrastructure is geared toward higher density, and they’re closer to residential neighborhoods, meaning zoning could be less of a challenge. Once professional businesses relocate to downtown office buildings, these mid-level buildings could be repurposed for multifamily and mixed-use communities at a far lower cost than downtown office buildings.

The result? Urban cores are re-energized by new business tenants and older, less-efficient office buildings can be redeveloped into much-needed housing.

What’s Needed

The success of the above strategy means that downtown Class A space needs to become financially accessible to smaller professional businesses. Owners and landlords of these buildings need to re-think their old lease and valuation models and municipalities would need to improve downtown safety and beef up public transportation.

This might seem a steep price to pay, but the alternative risks turning downtown locations from “commercial, entertainment, cultural and civic hearts” into little more than high-density suburbia.

The takeaway here is that adaptive reuse isn’t a bad idea, but renovating large downtown office buildings into residences is. It’s far better to support continued downtown office usage, encourage a new tenant profile to lease the space, then put renovation dollars toward structures that better lend themselves to multifamily use. Doing so means creating easily accessible, safe urban core locations while supporting the development of multifamily/mixed-use properties throughout cities.

Greg Lyon is chairman and principal at Nadel Architecture + Planning, headquartered in Los Angeles.