When I was little, my mom and I used to love strolling through the Park Plaza Mall in Oshkosh, WI. Crowds of shoppers bustled past neon signs for Younkers and Maurice's. Today, all of that is gone.
All that remains are a few tomblike offices. The once-crowded corridors are so empty that a dance school practices in them.
Is this the future of office space?
The Fall of the Office Tower
From a new report in Bloomberg:
In New York and London, owners of gleaming office towers are walking away from their debt rather than pouring good money after bad. The landlords of downtown San Francisco's largest mall have abandoned it. A new Hong Kong skyscraper is only a quarter leased
A tipping point is coming: In the US alone, about $1.4 trillion of commercial real estate loans are due this year and next, according to the Mortgage Bankers Association. (Other estimates are a bit lower.) When the deadline arrives, owners facing large principal payments may prefer to default instead of borrowing again to pay the bill.
The value of office buildings are projected to fall by 35% from the peak. Recovery may not come until 2040.
And You Thought Remote Work Was Bad
Remote work is killing the office tower. Only half of workers in New York are back in the office, according to building security company Kastle Systems.
As bad as remote work has been for offices, AI may be even worse.
Many tech companies have hiring freezes today. With AI making each employee more efficient, those hiring freezes could last for years.
Fewer, more productive employees means people waste less time coordinating with each other. It's also a lot cheaper.
AI hiring freezes mean that even if workers do come back to the office, there will be fewer of them. The demand for office space stays depressed.
So What Do We Do With Them?
The aging 70's and 80's towers filled with grey cubicles are done. They're the new dead malls.
The obvious solution is to redevelop them into apartments. But that's difficult and costs a fortune.
The deep floor plates mean that for an apartment to have any light, it must be extremely narrow. Prospective residents won't like that.
What's more, landlords have to add new internal walls and huge amounts of plumbing. This is enormously costly.
Given the costs and difficulties of conversion, only a couple percent of Manhattan office space could be converted to apartments, according to an estimate from Moody's Analytics.
So what happens to these buildings?
Many probably sit vacant until demand returns, years from now. Others may be demolished.
And maybe in the mean time, dance troupes can use all those empty conference rooms for practice.
What would you do with these empty office buildings? Leave a comment and let us know!
Have a great weekend everybody!
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