Future of Work and Office Conversion Considerations

Ben Tranel, Principal, and Holly Arnold, Project Director and Residential Practice Area Leader, of the Gensler Team recently shared key insights on the future of work and office conversion considerations, including office-to-multifamily, at EisnerAmper and Wells Fargo’s Real Estate Principals Luncheon.

Is Office Completely Dead?

This is the time for residential and we have been hearing a lot of discussion lately about office-to-residential conversion. The idea of office being completely dead is not 100% the case. Class B and C assets are the likely contenders for repositioning, as there is a flight to high-quality office space and a decreased demand due to the hybrid work environment. It is important to differentiate hybrid from remote work environment; all remote is not hybrid. The future will bring about a focus on designing quality office spaces that will draw people to come in and build organizational resilience and culture.

Residential and Mixed-Use Potential:

Not every building is a good candidate for conversion. Therefore, every building should be looked at independently. The speakers asked us to take a number of factors into consideration for office conversion, including the shape of building, distance between exterior wall and internal floor, the window-to-wall ratio and floor-to-ceiling height, building locations, how far they are from services, public transportation, access to shopping and amenities that help people live in these locations.

With so much to consider, focusing on the following three key focus areas can help maximize the potential of mixed-use properties:

• Building flexibility,
• Local destinations and
• Creating connections by identifying ways to bring people together and create meaningful connections.

Mixed-Use Success Story:

Retail centers were struggling before the pandemic. They are now repositioning themselves and becoming more successful by modifying the anchors and creating more rich opportunities. These include adding housing and repositioning retail centers to mixed-use environment, such as retail and residential anchors, offices, or senior housing.

During the fourth quarter of 2019, Calgary, Alberta, Canada had office vacancy approaching 30% (double the vacancy rate in Detroit when that city declared bankruptcy). In Summer 2020 during the pandemic, the City of Calgary approached Gensler and asked them to develop a strategy to assist with the office inventory. Gensler developed an office-to-residential scorecard to quickly evaluate multiple assets across downtown and identify the most eligible assets to convert to residential.

Future of Workplace:

The focus is on designing experiential spaces for coming together. There is a desire for spaces that enable workers to build community and create a shared sense of belonging.

The evolving approach in the workplace focusing on unique positioning for events includes:

• Dynamic Production: Use design standards that embrace frequent change-of-use to meet user group needs.
• Hospitality Vibe: Consider a concierge-driven experience with hired staff and higher quality finishes.
• Work Reimagined: Outdoor space is the amenity that everyone wants in office buildings nowadays. In current projects, clients are asking for more outdoor space as an office amenity.  Many outdoor spaces are being used in lieu of conference rooms.

Other Factors to Consider:

Government-backed financial incentives and streamlined approval processes need to be put in place for conversion of office to residential, in order to help generate more activities in a city. Currently, there are a couple of pro-housing policies in the works. For example, AB 2011—which provides a streamlined approval process for qualifying multifamily projects on commercially zoned districts—was just signed, taking away the requirement for a conditional use permit and an affordability requirement.

Sustainability perspective: The most sustainable buildings are the ones that are not built. Investing in the conversion of existing buildings can be advantageous, because the structure and other major building elements are already in place.

Additional Takeaways:

• In the Bay Area, BART doesn’t predict to go back to normal until 2028.
• New York is doing a lot better in terms of return-to-office compared to other markets.
• People who finished school online are desperate for a sense of community, belonging, and working in an office-professional environment.
• Another study showed productivity dropped 4% in the last quarter compared to when productivity went up in 2020 when everyone was working from home.
• Upper management have limited options to leverage or mandate people to come into the office. In a company survey, they found that in-office productivity measured higher than remote productivity. However, since companies don’t have enough people, they tend to take whatever productivity they can get from remote employees. Until a balance of power shifts, upper management will not have leverage.