Risks and Rewards

Article originally posted on Phoenix Business Journal on March 29, 2024

In many downtowns across the nation, office vacancies are hitting record levels.

Against that backdrop, cities are grappling with the effects of hybrid work, which is cutting into tax bases, threatening downtown vibrancy and contributing to a growing amount of vacant office space. Many cities are betting on the conversion of those office buildings to residential spaces, but those projects are proving to be easier said than done. A host of new incentives aim to mitigate the risk, but real estate insiders warn those incentives are far from a silver bullet, and even more may be needed to spark a true wave of conversions.

Based on physical characteristics alone, it’s estimated 60% of office buildings are poor candidates for conversion to residential use, according to a 2021 algorithm developed by design and architecture firm Gensler. There’s also the state of financing on the building in question, the kind of investment that’ll be needed to bring the building to a new use, and how much a nearly empty office building could trade for. Developers frequently say buildings need to trade at deep discounts if earmarked for conversion.

Read complete article here: https://www.bizjournals.com/phoenix/news/2024/03/29/office-conversions-downtown-revitalization.html