OFFICE-TO-HOUSING CONVERSIONS NOW TAKING OFF

 

SOUTHERN CALIFORNIA FOCUS
FOR RELEASE: FRIDAY, MAY 2, 2025 OR THEREAFTER

BY THOMAS D. ELIAS

“OFFICE-TO-HOUSING CONVERSIONS NOW TAKING OFF”

 

Conversions of billions of square feet of unused office space to dwelling units are starting to take off all around California. Except, that is, in the state’s densest city, San Francisco.

 

But that is likely to change soon, with Wells Fargo Bank’s longtime headquarters tower now for sale, along with two largely-unused office towers the federal government seeks to dispose of.

 

All three skyscrapers are among obvious candidates for repurposing in a local office market where more than one-third of existing space is currently unused. That’s in spite of moves by some high-tech firms to force workers back into offices fully five years after they were told to begin working from home during the depth of the Covid-19 pandemic.

 

Moves to compel highly skilled white collar workers back into offices fulltime have not worked well because many workers found they like home offices better than cubicle-filled spaces that lack soul. Also contributing to resistance: the fact that a healthy share of workers took advantage of work-at-home edicts to move their homes to less expensive locations with more open space than Silicon Valley can offer. The net result has been a rash of resignations sending a message to executives, who backed off a bit, now usually only asking workers to come in at least one or two days per week, not fulltime.

 

Meanwhile, the office space conversion bandwagon appears to be gaining speed in many markets. Nationally, the number of apartments and condominiums converted from office space reached a record high of 70,700 units last year, up from about 20,000 the previous year. The newer figure was developed by the RentCafe website, which has tracked this phenomenon from its start.

 

Across California, 5,892 apartments of varying sizes were in the conversion pipeline as of March 1, this coming after about 4,000 converted units went on the market last year.

 

These units provide ongoing income vital to the bottom lines of real estate investment trusts that long concentrated on high-rise commercial properties. It’s vital because most REITs saw their share values drop precipitously during the pandemic and have not since come close to recovering from the lost or reduced leases they suffered during the main Covid years.

 

Now Los Angeles, which saw about 12,000 units converted in the first few years of this trend, has 4,388 apartments in the development pipeline, enough space for about 13,000 residents, given California’s average household size of 2.86 persons.

 

Smaller cities have also become active in conversions since state legislators passed a couple of laws in 2023 making it easier for such projects to get building permits.

 

Long Beach currently has 420 units permitted, double the number in San Francisco, where demand for apartments dropped when the city lost populace as sent-home workers moved to cheaper digs in distant suburbs like Tracy and Petaluma. But the soon-to-be-available office towers seemingly begging for conversion might spark interest from young professionals who fancy living in the city’s downtown.

 

Goleta, near Santa Barbara, now has hundreds of conversion apartments in its pipeline, outpacing San Diego, where the idea has not yet caught on.

 

It’s clear some major markets have not yet adjusted to the new state-mandated permitting processes, but when that inevitably happens in places like San Jose and Fresno, living in converted office space promises to become a Generation Z fad.

 

That’s because units converted from office space are far cheaper to develop than new construction, while also leaving the character of neighborhoods intact and traffic flowing at previous levels, rather than causing new crowding.

 

The number of units now completed or underway debunks naysayers who claimed when the idea first arose that conversions would be more difficult to get permitted than new buildings.

 

That was never true, but is especially false since passage of a 2023 state law making permits administrative, with almost automatic approvals.

 

The bottom line: Office conversions, first recommended by this column in April 2020, are now the wave of the present and future in California and many other places. They can also be a boon to first-time home buyers, renters and current building owners.

 

 

 

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    Email Thomas Elias at tdelias@aol.com. His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, visit www.californiafocus.net.