Shifting Spaces: California Office Owners Eye Property Conversions
Source: San Francisco Business Times
In a recent report from law firm Allen Matkins and the University of California, Los Angeles, it’s revealed that office owners in California are showing a growing interest in transforming their properties for different purposes.
The data suggests that a significant portion of respondents, about 21%, expressed plans to redevelop existing office spaces into alternative uses like housing or retail within the next three years.
However, there’s a catch. Despite the expressed interest, considering the capital-intensive venture, it remains uncertain whether these plans will materialize into actual conversion projects.
The survey, conducted among approximately 200 investors and developers across California, including areas like the Bay Area, Sacramento, Los Angeles, and San Diego, did not specify how many respondents with conversion plans were based in San Francisco. The city has seen some interest in office-to-residential conversions, with two applications currently under consideration.
San Francisco, like many other cities, has seen increased attention on converting aging office buildings into residential units. However, financial obstacles have deterred many developers, especially considering the significant capital expenditure required for successful conversions, particularly in a market that was acquired at pre-pandemic pricing.
Despite some improvement in sentiment since August, a previous survey by Allen Matkins and UCLA highlighted that sentiment toward the Bay Area’s office sector remains generally pessimistic. With older office buildings in question, landlords are grappling with the decision of whether to tear them down or explore conversion possibilities.
In San Francisco, Mayor London Breed is taking steps to encourage residential conversions, particularly in the downtown area. She has proposed a measure on the March 2024 ballot to waive transfer taxes for converted properties, a move supported by developers seeking to enhance the feasibility of conversion projects. Additionally, the San Francisco Board of Supervisors has lowered the percentage of affordable homes required in new market-rate residential projects, including conversion projects, a step aimed at further improving financial viability. The evolving landscape of office conversions in California is one to watch, as property owners weigh the potential of transforming spaces to meet the changing demands of the real estate market.