Cities across the U.S. are looking at an ongoing housing crisis with no end in sight. There simply isn’t enough housing to meet the demand. More specifically, there is not enough affordable housing. Meanwhile, city neighborhoods are littered with vacant office space. Could there be a solution here?
At least some Colorado lawmakers think there is. They are working on legislation designed to encourage investors to convert vacant office space into residential housing. Either current property owners can handle the transformation or sell their properties to enterprising developers willing to take the risk. Either way, lawmakers believe they have a winning solution.
Workers Not Coming Back
A report from Colorado Public Radio says that the office space vacancy rate in downtown Denver now stands at about 30%. Things have been that way since the COVID pandemic. And it is not just Denver. Other cities in Colorado are looking at similar numbers. The fact is that workers are not coming back to once occupied offices.
There could be any number of reasons why. Companies preferring to continue with the remote and hybrid work scenarios no longer have need for so much office space. There is also the possibility that the ongoing economic malaise is preventing companies from hiring new staff that would otherwise fill their offices. Yet all that really matters is that there is a ton of office space not being utilized. Meanwhile, too many people are living in their cars.
The Best of Both Worlds
One of the more positive aspects of converting vacant office space into residential housing is revitalizing downtown areas that have since become ghost towns. Businesses that once thrived on downtown office workers would get a boost from residential housing as well.
Downtown restaurants would once again have patrons. So would bars and retail stores. Meanwhile, property owners would get back to collecting rental monthly payments instead of sitting on empty space currently generating no revenue. It is the best of both worlds for property owners and city officials alike.
There is a downside, however: the possibility that more office space will be needed in the future. Maybe the economy rebounds and companies start hiring again. The problem with converting office space into residential units is that you cannot convert it back very easily. So if demand for office space goes up and there isn’t enough to meet the need, you now have a new problem.
The Opportunities Are There
As things currently stand, vacant office space is wasted space. From that standpoint alone, it’s obvious that investment opportunities are there. It is a matter of seizing those opportunities with the right business plan and some creative financing.
Salt Lake City’s Actium Partners, a hard money firm that makes loans in Colorado, Utah, and Idaho, says hard money and bridge loans are two options. Investors can also look at conventional loans, equity investments, bootstrapping, and other options.
One possible advantage is the fact that most office buildings are built as flex space. Converting existing space into residential units should not be as expensive as building from the ground up. That would allow investors to keep rents reasonable – which will undoubtedly be necessary to take advantage of government incentives.
America has a housing crisis. Meanwhile, our cities are filled with unoccupied office space. Perhaps we can solve both problems in one fell swoop. Converting vacant office space into affordable residential housing makes good sense on paper. But is it economically viable in the real world? That is something for investors to figure out. If they can make it work, why not do it?
