Conversions are helping offset the rise in vacancy

April 09, 2024
  • Jacob Rowden
  • Elena Lanning
  • The record pace of inventory removals continues to accelerate nationally, with over 10 million s.f. removed in the first quarter, driving the first decline to national office inventory on record.
  • A large share of office vacancy is currently concentrated in underperforming or transitional office assets which are ripe for redevelopment, and the pace of redevelopment is currently reducing overall vacancy by 65 BPS per year at an annualized rate.
  • A combination of factors, including relative outperformance of multi-housing in recent years, shifting allocations among core capital providers, a greater volume of office trades priced below replacement value, and most notably a slew of new local incentives targeted at spurring office-to-residential conversions has led to the acceleration. 
  • Chicago’s Lasalle Street Reimagined initiative, which dedicates TIF funds to office-to-residential redevelopments in the Lasalle Street corridor of the Central Loop, recently received full approvals from the local government. To date, five conversion proposals have been selected in the program that would remove 3.5 million s.f. of vacant space from the Central Loop and create 1.7 million s.f. of new tenant requirements from the remaining office tenants who would need to relocate. 
  • Extensions of existing incentives and a variety of new resources enabling conversions in New York have also had a notable impact: 160 Water Street which is currently being converted was the largest office-to-residential conversion ever when the project began but has recently been eclipsed by a proposed conversion of the former Pfizer HQ by Metro Loft.