WorkPlace to LiveSpace
From Office to Home: Transforming Workplaces into Modern Living Spaces
The Call to Adventure:
It doesn’t take a crystal ball to see the nation is desperately needing additional housing. The cost and timeline to gain regulatory approvals & develop new construction is not keeping pace with the demand for housing in most cities.
According to the National Multifamily Housing Council, the demand for multifamily housing is expected to grow by 7.1 million units by 2030. This growth is being driven by several factors, including the increasing number of millennials and Gen Z entering the workforce, the aging of the baby boomer population, and the rising cost of homeownership.
As quality office tenants continue their flight to quality over quantity, the vacancy of Class B and Class C properties continues to grow. All eyes are on the following cities to see how their leadership prepares for the approaching tsunami. Hopefully they are hearing the sirens.
Although changing rapidly, here’s where we’re seeing the most opportunity:
San Francisco, California
Los Angeles, California
Let’s break that down;
That's roughly 27.1 million square feet of office space available. Put differently that’s 20 Salesforce Tower’s worth of office space available.
Need a visual?
20 of this one…the tallest one. In napkin numbers, that space could become 24,000 potential apartments.
For some of these Class B and C office assets, the money it would take to bring their buildings up to date—to modernize the elevators, overhaul the mechanical systems, complete a full facade reclad, and more—is just not worth it.
Today, Green Street, a commercial real estate analytics firm, forecasts that office demand will decline approximately 15% due to flexible work. However, that forecast obscures the clear “flight to quality,” where the negative demand impact has skewed toward older, under-invested buildings—and strong demand has continued for high-quality space.
This flight to quality office buildings can be new or recently renovated, and they tend to be filled with amenities and in gateway cities near transit hubs. For example, since the start of the pandemic, 84% of total leasing activity in midtown Manhattan has occurred in Class A or trophy assets, according to Cushman & Wakefield.
Refusal of the Call:
The initial response to this call was hesitation. Developers were concerned about the high cost of conversions, parking, zoning, and the impact of the pandemic. They were also unsure if they could make the math work, or if amenities could overcome the building's unattractive or sterile architecture.
Meeting the Mentor:
To overcome their doubts, developers are turning to Clockwork, who has leveraged their millions of feet of office and multifamily projects to form an inside-out approach to navigating these conversions. Clockwork offers advice and information on the benefits of conversions, including tax credits, city incentives, and from a planning point of view, which one’s work and which one’s don’t.
On a recent conversion project, a developer was working with a nationally recognized architect who proposed a cookie cutter solution resulting in 215 units. The developer was referred to Clockwork, who prepared a solution with 260 units, a 21% increase that now made the conversion viable.
Crossing the Threshold:
Necessity is the mother of invention. Utilizing proprietary algorithms and open-sourced AI tools, most buildings can be screened quickly, and Clockwork provides this initial Go/NoGo evaluation at a fraction of the cost of competitors. After the initial screening, and determined to be a viable candidate, a more in-depth evaluation can be completed:
Financial Feasibility Study
Building Planning Considerations
Clockwork is well known throughout the construction industry for their relentless resourcefulness. With years of experience in most US jurisdictions their ability to navigate seemingly impossible schedules and budgets is unparalleled. Their team of advisors and construction partners yield solutions where other architectural firms only identify problems. They are the chosen consulting partner for some of the largest organizations in the country due to their track record and no-ego centric approach that is rare in the industry.
On a recent conversion project, they assisted the developer in achieving a Historical Designation for an all-glass 1970’s office building conversion that resulted in 45% of the construction costs being eligible for tax credits.
The construction process is a long and difficult process, and it is a test of anyone’s resolve. Unexpected costs and delays will occur, but how they are managed determines the success of the project. Remaining agile and making decisions on the fly prevents costly delays and change orders.
On a recent conversion project, a below grade high density storage area became the perfect location for indoor pickleball courts.
On another recent conversion project, an area below a pedestrian walkway became the perfect location for an outdoor dog park.
The reward is multi-sided, not only is the return on investment typically higher, but the speed to market is faster, the environmental benefits are greater. By repurposing these liabilities into assets, they could help to address the affordable housing crisis.
“The hollowing out of the downtowns in the United States and elsewhere in the world is going to be quite significant and quite unpleasant,” Berkshire Vice Chairman Charlie Munger told the shareholders at the annual meeting.
“I think the country will get through it alright, but as they say, it will often involve a different set of owners,” Munger said.