Since the pandemic, now more than three and a half years ago, office vacancy rates have skyrocketed in cities across the country, with newspapers and magazines reporting the dreary numbers in Houston, Portland, San Francisco, Dallas, Los Angeles, Chicago, and New York City. By some estimates, up to twenty percent of offices in the US are vacant. In Pennsylvania, Pittsburgh and Philadelphia represent standout examples of empty office space leading to underutilized downtowns. (A recent article in the Pittsburgh Post-Gazette outlines some of the challenges cities face when dealing with vacant spaces.)
As hybrid work crystallized from an open-ended response to the pandemic into a seemingly permanent condition, companies began to consolidate office spaces or broke their leases outright, leaving behind financially impractical terms. Facebook, for example, recently announced it was vacating its New York offices and yielding 435,000 square feet of office space in San Francisco.
For cities such as Chicago and New York, whose economies depend on more than just tourist dollars, the office vacancy trend could eventually be catastrophic. Declines in public transportation ridership from commuters heading to work invariably lead to budget shortfalls and the shelving of ongoing infrastructure projects. Similarly, a lack of foot traffic in downtown districts affects restaurants, bars, and retail outlets, eroding city funding from sales taxes and limiting employment in the service sector. Another possible consequence of emptier streets is a general decline in the atmosphere. In San Francisco, for example, quality-of-life issues forced officials at the US Department of Health and Human Services to urge remote work to its employees indefinitely.
For owners, losing tenants at a rapid pace puts them on the road to potentially defaulting on mortgage payments, and that extends the domino effect to banks. From city to city, entire financial ecosystems are seemingly at risk if the demand for office space remains low.
As a result of these potential aftershocks, some cities have begun the process of converting office buildings into residential ones. In fact, there is great optimism surrounding the notion that office conversions are the solutions to moribund downtowns and, to an extent, a national housing shortage. But visions of ghostly downtowns transformed–en masse–into thriving residential zones may be more than just farfetched: they may be impossible, or at least improbable.
Converting office buildings into apartments is not nearly as simple as it sounds. For one thing, some office buildings are unsuitable for retrofitting due to layouts designed primarily for functional use and to maximize square footage. Most office buildings have deep cores, dedicated areas for bathrooms, windowless rooms, and large floor-throughs whose subdivision would be impractical. Red tape is also an issue for office buildings located in single-zone districts. In New York and Pittsburgh, efforts to fast-track office conversions are aimed at sidestepping regulations in hopes of receiving construction permits as soon as possible. Finally, for some developers, the prospect of conversion is cost-prohibitive, even with underwriting from federal programs.
Of all the solutions proposed for reinvigorating downtowns ravaged by empty space, the most likely to succeed is the modernization of buildings to make them both desirable and sustainable, which would lure employees back to their desks. This end result, known as the flight to quality, would theoretically ensure that only buildings focused on health and efficiency upgrades would survive the shift in trends. These upgrades would transcend traditional workplace amenities and include occupant wellness, health, and comfort—all aspects of high-performance design. While the internet era and the tech revolution radically altered the concept of the office—from on-site gyms to game rooms—neither focused on the health and well-being of employees.
In the COVID era, we have become more aware of airborne pathogens and the drawbacks of sharing enclosed spaces with poor ventilation. A high-performance retrofit would reduce the possibility of viral illnesses and help employees who suffer from respiratory ailments such as bronchitis and asthma. In addition, research has shown that improved indoor air quality can sharpen cognitive function and drive productivity. Upgrading lighting with circadian-tuned technology also positively affects the well-being and mood of building occupants.
By retrofitting offices with high-performance principles, building owners will ensure that the flight-to-quality calculus will be in their favor. Last year Mike Watts, President of Americas Investor Leasing, analyzed the numbers and spoke to CBRE about the growing trend. “This data represents just one of many ways of assessing the flight-to-quality phenomenon, but it does provide a simplified, clear view for consideration,” he said. “The data underscores that companies are investing more in their offices and owners are investing more in their buildings to get into the top tier and stay in it. Owners in lower tiers may need to get more aggressive in their pricing and concessions to generate sustained leasing velocity.”
Not only would retrofitting offices in high-performance style tempt employees to return, but it would also raise the valuation of buildings and serve as a differentiator for owners. After all, not every building can advertise itself as being physically and psychologically beneficial to its occupants. Owners also have a chance to qualify for tax credits (from the Inflation Reduction Act as well as local municipal programs) by meeting energy and sustainability standards. This process of attrition—with tenants choosing wellness and amenities, leaving behind the outmoded office building—underscores the importance of adapting to the growing awareness of sustainability and wellness. In some ways, the great empty office debate is an extension of the healthy building movement. At the center of both issues is the human factor and how design can improve our day-to-day lives.