FMJ Facilities Management magazine providing industry-specific intelligence to FM and property professionals
CBRE found more than 23 million sq. ft. of office space planned for conversion or demolition this year, which exceeds the amount of new construction.
More office space will be removed from the U.S. market this year than added to it for the first time since at least 2018 and likely longer, providing another indicator of the market’s stabilisation and nascent recovery, according to a new report from CBRE.
CBRE’s analysis of office-market activity across the largest 58 U.S. markets found that, by the end of this year, 23.3 million sq. ft. of space is slated for demolition or conversion to other uses. In comparison, developers are projected to complete construction of 12.7 million sq. ft. of office space in those markets this year.
CBRE has tracked office conversions and demolitions since 2018. Construction completions handily exceeded conversions and demolitions in each year until 2025. Completions likely exceeded conversions and demolitions prior to 2018, given that office construction was robust and conversion activity minimal in past decades.
Various other indicators depict a U.S. office market that’s slowly turning the corner. Net absorption – the amount of space newly occupied in a quarter versus the amount newly vacated – has been positive for the past four quarters after six straight quarters of negative absorption. Office-leasing activity increased 18 per cent in the first quarter from a year prior. Still, the national vacancy rate continues to hover around its all-time high of 19 per cent.
Market-By-Market View
Conversion activity varies widely by market. Manhattan, Washington, D.C., and Houston have the most office square footage planned or under construction for conversion. Meanwhile, Cleveland (8.4 per cent) and Cincinnati (6.6 per cent) have the largest percentage of their overall office square footage under conversion.
Most Conversions to Multifamily
Multifamily has increased its already dominant share of conversion projects. Seventy-six percent of active conversion projects are planned to become multifamily complexes as of last month. The next most popular option, hotels, account for only 8 per cent of the conversion pipeline. Life sciences labs, previously among the top options, have fallen to 3 per cent of the pipeline, behind “other” uses (10 per cent) and Industrial & Logistics uses (4 per cent).
CBRE calculates that, since 2016, office conversions to multifamily have generated 33,000 apartments and condominiums. Projects in the pipeline stand to add another 43,500 units to the housing market. CBRE’s analysis relies on the historical average of 170 units per conversion project.
