Daily Real Estate News | Thursday, October 31, 2013
Though U.S. developers added 39 million square feet of new office space nationwide over the last year, the gains were muted because another 22 million square feet of office space was removed from the market, CoStar Group reports.
Where did it go?
Developers have either demolished or converted the removed space into other uses, such as apartments or condos, according to an analysis of CoStar’s third-quarter Office Outlook and Forecast.
“Clearly, we see a shift in how real estate is being used and what developers are building,” says Walter Page, director of office research for CoStar. “So far, over half of the office recovery has been driven by removals of space. We’re still at a very low level of [net] completions, due mostly to demolitions.”
But more developers are second-guessing demolishing these older office buildings and opting to convert these spaces into residences in order to help meet growing demand for urban residential space. The trend is most evident in markets like New York City, San Francisco, Chicago, Philadelphia, Baltimore, northern New Jersey, and Washington, D.C., CoStar notes.
Developers are finding that residential condos can fetch investment sales prices of up to $5,000 per square foot, much higher than what the office buildings attracted.
In Baltimore, the conversions are helping to fill vacancies from large office tenants who left over the last several years. In the last year alone, more than 800,000 square feet of office space has been removed from the inventory in Baltimore and converted into residential conversions, CoStar notes.