With High Office Vacancy, Developers Converting Space To New Concepts
With millions of square feet of vacant office space and tenants vying for new and amenitized Class-A space, developers are being forced to find new uses for the DC area's old office buildings.
Over the last 10 years, 5.7M SF of office space has been converted to other uses, research from JLL shows.
Of these projects, roughly 74% have been converted to residential buildings. JLL managing director and head of multifamily capital markets Christine Espenshade says residential is the easiest conversion to make from a development perspective, and it is also the most sought after asset class in today's market.
"It’s the ability to get financing," Christine says. "Of all the product types, it's still easiest to get financing for multifamily. There's so much demand for it."
In the District, 13 conversion projects have totaled 1.1M SF. Northern Virginia has seen eight projects totaling 1.3M SF, while suburban Maryland has had five projects totaling 518k SF. Baltimore has been the most active submarket, with conversion 17 projects totaling 2.8M SF.
The reliance on the federal government as DC's biggest office tenant has caused high vacancies as the government raises its standards for suitable office space, Christine says.
"That has left DC, more so than many markets, with unusable office space," Christine, above vacationing with her family in Maine, says. "So developers have gotten creative, saying, 'What can I do with this office building?'"
This need for creativity has led to innovative new concepts, Christine says, citing WeWork's new residential concept WeLive in Crystal City and Novus Residences' office-residential hybrid concept, e-lofts, in Alexandria.
"In my mind that stands out as something that’s very interesting as people change the way they work and live," Christine says of e-lofts.