Tag Archives: office buildings

How empty are American offices right now?

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A headline of an analysis of office space and vacancies in the United States suggests “American offices are half-empty.” Is this true? Here is how the analysis starts:

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From Dallas and Minneapolis to New York and Los Angeles, offices sit vacant or underused, showing the staying power of the work-from-home era. But cleardesks and quiet break rooms aren’t just a headache for bosses eager to gather teams in person.

Investors and regulators, on high alert for signs of trouble in the financial system following recent bank failures, are now homing in on the downturn in the $20 trillion US commercial real estate market.

After detailing the economic effects of this, particularly how banks might be affected, here is some evidence for the headline:

Office properties have been getting hammered the hardest. Hybrid work remains popular, affecting the rents many building owners can charge. Average occupancy of offices in the United States is still less than half March 2020 levels, according to data from security provider Kastle.

And then it is back to the possible fallout, including:

Trouble may build as the economy slows. Hill thinks US commercial property valuations could fall roughly 20% to 25% this year. For offices, declines could be even steeper, topping 30%.

The headline suggests half of offices are empty. The primary piece of evidence in the article says that average office occupancy “is still less than half March 2020 levels.” Does that mean average office occupancy was 100% in March 2020? Does this mean half of office buildings have no people in them? Even if the real figure about empty offices is 30% or 40%, this would be a big number with lots of ramifications.

An earlier article on the same site had a similar headline and evidence. From early March 2023, the headline: “Offices are more than 50% filled for the first time since the pandemic started.” The evidence:

Office occupancy across 10 major US cities crossed 50.4% of pre-pandemic levels for the first time since early 2020, according to security swipe tracker Kastle Systems. That marks the first time occupancy has crossed the 50% mark since March 2020, when many offices sent workers home because of Covid.

Again, the comparison is pre-COVID levels, not necessarily 50% of total possible occupancy. Again, this is a significant change that is a little different than claiming offices are more than 50% filled.

This all might be pedantic, but, if we should pay attention to offices, working from home, and the consequences of changes to commercial real estate, what are the actual figures regarding how much office space is occupied and/or leased?

The multiple barriers to converting office space into housing units

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Henry Grabar details the many issues in switching office space to living space:

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What’s going on? One problem is simply with the shape of office buildings: Their deep floor plates mean it’s hard for natural light to reach most of the space once it’s divided up into rooms. Their utilities are centralized, which requires extensive work to bring plumbing and HVAC into new apartments. Either way, they require significant architectural intervention. The older stock of prewar offices, which are better suited for residential units, have often already been converted in cities like Chicago and Philadelphia. Another issue is with zoning codes that bar housing from office districts. A third obstacle is the building code: Early residential conversions, like those in SoHo’s lofts, were usually illegal, sometimes for complicated reasons that seem less important than mandating a window in every bedroom.

What’s more, business districts don’t empty out building by building but with vacancies here and there across the skyline. You wouldn’t convert Twitter’s building, since it’s partially occupied by workers. So, in one sense, Musk’s bed stunt is an example of his already innovating at Twitter. Very mixed-use! “You’re not going to run into a building that’s 100 percent empty, ready to be converted,” said Anjali Kolachalam, a researcher with Up for Growth. She recently ran office space in downtown Denver through a filter to find good conversion targets—tall buildings with high vacancy rates and small floor plates built before 2010. She wound up with just 4 office buildings, out of the 208 total.

Finally, converting buildings to residential use is expensive. Couple that with the fact that office rents are higher per square foot than residential rents are, and you see why developers aren’t champing at the bit to get new projects underway. Van Nieuwerburgh gave me an example from San Francisco, where Juul’s old headquarters—down the block from Twitter’s improvised dormitory—is for sale for $150 million. That’s a lot less than the $397 million the embattled nicotine vape company paid for it in 2019. But at $400 a square foot to buy and another $400 a square foot to renovate, he said, the conversion would still produce a building with rents too high even for San Francisco. In other words, offices may be down, but they’ll have to fall a lot further before adaptive reuse becomes a bargain.

While the challenges are present, I wonder if someone has this figured out – this could be a company, developer, or community. Are there ways to quickly address the issues listed above or does it require a sustained effort? Imagine someone figures this out and there is a way to make some cool conversion from an exciting work space (if this is possible) or name to an interesting housing unit. If this can happen for churches and religious buildings, why not for office buildings?

If this does not work easily now, could we anticipate new buildings that could more easily switch between uses? There are ways to plan, zone, and build with more flexibility in mind so that adjustments could be made given needs and market conditions. Would it cost more to construct a building in this way? If so, perhaps the possible higher occupancy rates and the ability to adjust could bring in more money in the long term.

An on-trend Amazon HQ2

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Many plans are made for large buildings in cities and metropolitan regions. Not all of them are built. But, when Amazon releases plans for their HQ2 in Arlington, Virginia, people take notice because of the company and the design.

AboutAmazon.com

The centerpiece will be the site’s fourth and tallest tower, a 350-foot structure dubbed the Helix because it will feature two spiraling outdoor walkways with trees and plants from Virginia that twist to the building’s top…

Amazon’s new campus is the latest in a growing line of outdoorsy office projects, as companies try harder to offer a pleasant work environment and appeal to eco-conscious employees.

The Helix “will be an opportunity for people to literally go on a hike in the city,” said Dale Alberda, a principal at architecture firm NBBJ, which is designing the development across the river from Washington, D.C.

Plans for inside of the building also call for plenty of greenery, along with meeting space, offices and studios for artist residency programs. “You feel like you’re in a lush garden in the middle of winter in D.C.,” Mr. Alberda said of the interior design.

As someone who teaches Urban Sociology, this is right on trend in multiple ways.

  1. It is just outside the central city of the region but within a business district. (The Washington D.C. region has some unique features due to the government buildings at the center but the multinode region is found throughout the United States.)
  2. The building has numerous green features, both visible (such as lots of trees) and invisible (planning for efficiency).
  3. The design is more whimsical and playful compared to the more common glass and steel box. The structure will certainly stand out and attract visitors just to see it.
  4. The architects and the company say it is designed with people and well-being in mind, not just efficiency or costs.

Perhaps the only trend missing is a mixed-use component where the office space is combined with residential and commercial space.

All of this is for a tech company – perhaps the tech company right now – within an industry that hundreds of American communities would love to attract. Does this building work in the same way if it is built by an insurance company or as a municipal structure?

It will also be interesting to see how this interacts with surrounding buildings – including the other planned Amazon towers – and the broader community. Amazon says the grounds will be open to the public yet how many community members will be able to take advantage.

Opening a 56-story Chicago office building during COVID-19

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The new Bank of America office building, 816 feet tall and 56-stories along the Chicago River, is ready for business. But, COVID-19 is around…

From film at https://110northwacker.com/

The lead tenant, Charlotte, N.C.-based Bank of America, expected to have more than 2,600 people working on its 17 floors of the 56-story tower. But fewer than 200 work there now, according to company spokeswoman Diane Wagner…

By drastically reducing the number of columns that come to the ground, this structural tour de force allows the tower’s caissons to reach bedrock without hitting the remaining caissons of the old Morton Salt building. It also opens up the riverwalk, which would have felt constricted had it been hidden behind a row of columns.

To some, the arrangement may appear unstable. But new section of riverwalk, with its long, curving benches and still-to-be-planted greenery, is among the strongest contributions the tower makes to the public realm. It will not become a windblown cavern, the architects assure…

With COVID-19 still a significant threat, the developers have put several safeguards in place, including walk-through temperature scanning in the lobby, antimicrobial cladding on the building’s entry doors and upgraded air filtration systems. Tenants can swipe their smartphones on high-tech turnstiles that call an elevator. There’s also none of the welcoming seating that animated other downtown office building lobbies before the pandemic struck.

It sounds like the pandemic has effects on two major features of the building:

  1. The interior will not be functioning as it was designed for a while. This building has a lot of office space; will it ever be fully filled after COVID-19 passes and businesses reckon with shifts to working from home? We have not heard much about what it is like to work in such conditions – a relatively empty building – nor do we know how building owners and developers plan to use office space if they cannot attract firms.
  2. The excerpt above describes how the building interacts with the surrounding environment. It sounds good. But, how does it look and/or function when the typical street life of the Loop is not present? Can aesthetics overcome a lack of social interaction? When will the building fully participate in regular urban life?

Since this is not the only large downtown building under construction in Chicago, let alone in large American cities, it will be fascinating to see what comes of these structures. Will they be regarded as the last of the big central office buildings in a decentralized work landscape or will they be brave attempts to do business as normal or do they represent a new wave of exciting buildings that mark a post COVID-19 era?

Strategies for renovating old downtown office buildings to compete with new towers

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Pressure on office and residential space in Chicago’s Loop is coming from multiple angles, including the need for older buildings to adapt to modern office requirements:

Kamin said he expects more office buildings to find a second life as hotels or residential towers. “I don’t think there’s a successful path for some of these functionally obsolete buildings as offices,” Kamin said…

The high cost just to acquire a property presents relatively few opportunities for major overhauls, said developer Craig Golden of Blue Star Properties…

The venture took out a nearly $100 million construction loan in 2016, and converted the 20-story building into modern offices, branded as The National — a reference to the property’s 1907 opening as the home of Commercial National Bank.

The developers added the type of distinguishing feature that has helped properties thrive in recent years, creating the sprawling Revival Food Hall on the ground floor. The food hall brings in lunch crowds from throughout downtown, adding to the building’s vibrancy. Office tenants include co-working firm WeWork and the headquarters of Paper Source.

I have heard that it is often cheaper for companies to build a new big box store than to reuse and/or renovate one built by another company. Thus, problems with vacancies when companies close locations. Could the same be true for downtown office buildings – the cost of renovation is too high? I find this a little hard to believe given the difficult process that can ensue in order to construct a sizable building in a major city.

Similarly, the strategy of adding enticing dining options echoes what is happening with shopping malls expanding beyond retail to dining, residences, hotels, and a variety of entertainment establishments. The goal is to both promote multiple uses but also cross-traffic between organizations and business as people need to work, eat, enjoy life, and sleep.

Perhaps we will know there is really a problem when multiple older structures are torn down to make way for new buildings.