The cause, as many will be aware, is the relative shift to remote working, but the said report goes further, adding data to back this up. The US Census Bureau’s American Community Survey recorded a near-threefold increase in the percentage of workers working from home, from 5.7% in 2019 to 15.2% in 2022. Defined as being workers who spend the majority of their week working from home, this includes those heading into the office one or two days a week.
A remarkable statistic, with an even greater seismic shift for the office sector if you consider the innumerable jobs for which working from home is not an option, with factory workers, coffee baristas and airline pilots springing to mind.
The shift in many of the nation’s largest cities has been even greater, with San Francisco, Seattle and Washington DC all moving from less than 10% of workers working from home in 2019, to more than 30% in 2022. And while this may have dialled back a little since, with some employers started to demand to see more of their staff, the impact is still severe.
What to do? Well, it is far from ideal if you are the one with capital in the property, but every asset will find its value level and be capable of being repurposed in one form or another.
CBRE reports that nearly 70 million square feet of office space, equivalent to more than 25 Empire State Buildings, was undergoing conversion in the first quarter this year. That two-thirds of this space is being converted into multifamily housing is not a surprise, but there is real variety for the remaining portion, including life sciences, hotels, data centers and industrial.
The projection from CBRE is that this volume of regeneration will double over the next 12 months, and considering the current high build and interest costs which weigh on such projects, it may well accelerate further thereafter.
What does this mean for Islamic investors? Expect to see more such office conversion projects hitting your inbox. We at 90 North provided the capital for several office-to-residential conversions in London in the past, but it seems more likely that these will be on the other side of the Atlantic over the next few years.
Written by Philip Churchill, first published in Islamic Finance news Volume 21, Issue 23 dated 5th June 2024.