Vacancy rates are still too high in the U.S. office market, according to the latest research from CommercialCafe.
What might help? Conversions.
According to CommercialEdge, the national U.S. office vacancy rate stood at 19.4% in May. If that sounds high, that’s because it is: CommercialEdge reported that this vacancy rate was up 160 basis points from the same month a year earlier.
More developers, though, are considering converting outdated office space into other uses, most often new multifamily developments. CommercialEdge said that more than 149 million square feet of office across the country is slated for conversion, with 125 million square feet of this total proposed since the start of 2022.
This means that the number of proposals for converting office space has grown every year this decade.
The problem? While conversions can help reduce the office vacancy rate, they are no cure-all. Too many outdated office buildings don’t make sense for conversions. Owners who want to convert office space into multifamily properties need the right location and the right building structure for the conversion to make sense financially.
Conversions, then, might offer some relief for the struggling U.S. office market, just don’t expect them to rescue this sector on their own.
In other findings from its report, CommercialEdge reported that Midwest markets continue to rank as some of the most affordable for office investors.
Consider the Minneapolis-St. Paul market. CommercialEdge reported that office assets in the Twin Cities market sold for a modest $66 a square foot in May. Perhaps because of this lower cost, the Twin Cities market saw $221 million of office sales this year as of the end of May. That’s up from $188 million through May of last year.
In Chicago, office properties sold for an average of $59 a square foot in May. This market recorded $794 million in office sales this year through May 31, tripling its volume from the same period last year.
Detroit’s office market continued to struggle. CommercialEdge reported that this market saw just $59 million in office sales through May of this year. The Detroit office market’s vacancy rate also stood at a high 24% as of the end of the May. That’s higher than the 17.2% vacancy rate in the Twin Cities office market as of the end or May or Chicago’s 19.6% vacancy rate as of the end of the same month.
