Opinion: There’s a Glut of Vacant Office Buildings, But Converting Them to Homes Is No Panacea

A downtown office building (600 B Street) was foreclosed and taken back by the lender. A nearby building (530 B Street) was sold with plans to turn it into apartments. And with the Civic Center redevelopment off the table, the city is weighing proposals to turn 101 Ash Street into low-income housing.

To a real estate professional who has long been involved with homelessness organizations, this is a very big deal.

But are yesterday’s office buildings today’s answer to a lack of housing and homelessness? Some think so. I’m not so sure.

What Happened?

“There’s something happening here. What it is ain’t exactly clear.” — Buffalo Springfield

Thanks to technology and COVID-19, the work-from-home model upended how business is done. Office buildings are suffering unprecedented vacancy rates. The New York Times reported that bottom-feeding investors are buying them at discounts up to 70 percent.

Meanwhile, in cities across the country, homeless populations are growing. In San Diego, the number falling into homelessness exceeds the number finding shelter on a regular basis.

Rent Café released a study on the growing interest in converting commercial buildings — including office buildings and hotels — into apartments. And numerous cities are rushing to facilitate adaptive reuse by making it easier to pursue.

Problem solved?

While tempting to think that a building is a building is a building, that is not reality.

If It Looks Too Good to be True …

During Bill Clinton’s first Presidential run, campaign wizard James Carville said, “It’s the economy, stupid!”

The issue with converting commercial into residential … well, it’s the floorplate, stupid.

Conference rooms with no windows may work; housing units with no windows, not so much. Maybe better than tents on sidewalks and cramped cars in parking lots, but not very desirable.

Office buildings generally have two or four bathrooms on each floor. How does that jibe with private bathrooms? And sinks and showers? The plumbing logistics are daunting.

Office buildings are rarely plumbed for gas, so stoves and ovens would have to be electric. The reality is people are slow to change. “Cooking with gas” is not just a cliché.

Office buildings have several thermostats on each floor but not enough for each unit to have its own climate control. Who wants their neighbor adjusting their temperature?

Another major problem is safety issues like emergency exits. In older buildings, they often don’t meet today’s standards and the cost to upgrade them is prohibitive.

And parking is an issue … the promise of all-electric-all-autonomous-on-demand vehicles notwithstanding. Today, people own cars and need parking. Office buildings are for day use and do not have the parking spaces per capita that residential buildings need.

Risks of Unintended Consequences

Besides, I strongly believe local governments need to keep their employees in downtown office buildings. A livable downtown has office, residential, retail, commercial and recreational opportunities. Workers in office buildings are customers for coffee shops, bakeries, sandwich shops, restaurants and retail. Without that all-day customer traffic, it is difficult for small businesses to thrive, much less survive.

How can local governments strike a balance? To start, ensure a clean and safe environment. In effect, “take back our downtowns” from growing crime and homelessness and unsanitary conditions.

And then do not move large city departments out of downtown. Local governments would do better to bring more jobs downtown, including their own.

What I have seen over my long real estate career is that there is always a pendulum effect. Today’s trend is just that … today’s trend.

In the recent past, there was a rush to construct office buildings to support population and job growth. Now we see a glut of office buildings with alarming vacancy rates and deeply discounted sale prices. From one extreme to another?

My instincts tell me the pendulum will swing again … back to what I don’t know. But I do know that repurposing office buildings into residential units is not the panacea it may seem.

David L. Malcolm is President of San Diego-based Cal West Apartments with a real estate career spanning five decades. He served on St. Vincent de Paul Management Board of Directors for 31 years and recently joined the San Diego Rescue Mission Board of Trustees.