Pandemic’s Solution for Housing Crisis?
by Shelly Branscom, CCIM
Just weeks ago, downtown business districts were bustling with people working in their offices, meeting up for lunch, and comingling for happy hour. No longer. Once thriving Central Business Districts are facing silent streets, empty offices, and only a few social gatherings.
What can those once thriving Central Business District offices and hotels become? With the abundance of vacant commercial real estate we will likely begin seeing vacancy transform into what we are most desperately clamoring for: housing.
The nation is experiencing an unprecedented housing shorting, causing bidding wars and driving home prices to all-time highs. These repurposed buildings could become opportunities to increase the much needed supply of residential real estate.
But wait…..many of these vacant office and hotel buildings are located in the crowded city centers, from which many residents are fleeing for suburban and rural areas. Even if these spaces are converted to residences, will people want to live in them? Time will tell. However, America’s business districts are poised for a metamorphosis.
Trust me, the office sector is not dead and it is not going away. However, it will change over time. Some office buildings could become flex buildings with a few office floors, a few residential floors and retail on the ground floor. Others will remain in their current state with vacancy sprinkled throughout.
We know we cannot work from home forever. Many employers will move to a hybrid schedule of employees working part time in the office and part time at home. Others will downsize headquarter locations and turn to the Hub and Spoke model. While others will increase their footprint to accommodate for social distancing in the workplace.
Hotels are experiencing less than 50% occupancy today, leaving many not be able to sustain business through and past the COVID-19 virus. One thing is true, we all like to travel for leisure and businesses need to travel for production. Hotels will be rented again. It will just take some time to get back to pre-coronavirus occupancy levels.
Hotels may be even more attractive to convert to housing than office buildings as they are already divided into individual spaces complete with their own bathrooms. They typically already include common spaces such as a gym and/or a pool and parking.
As previously mentioned, we will not see the full impact of the office occupancy until Tenant leases expire. Most Tenants have three to five years left on their lease terms. Much can happen between now and then. Yes, some businesses will close. However, more will open and lease vacant office space.
The office and hotel sector metamorphosis will take some time to unfold. In the meantime, Landlords with properties in Central Business Districts are collaborating with developers to begin strategizing how they might be able to convert unused space to meet the demand of the housing crisis.
Shelly Branscom, CCIM is an NAI Maestas & Ward commercial real estate specialist that provides substantial long term strategies and business planning services to her clients. She prides herself on thinking outside the box, enabling her to contribute unique solutions and outcomes specific to each of her clients. Learn more about Shelly and her listings.
NAI Maestas & Ward is a full-service commercial real estate company serving New Mexico since 1996. The company is a dynamic commercial real estate firm offering best-in-class real estate services in brokerage, property management, asset management, business brokerage and development services.