The area around San Jose was once a hot spot for commercial office space. Businesses that wanted an attractive zip code and proximity to large, successful companies sought office space in the area and were often willing to pay a premium price for their units.
Many companies invested heavily in commercial real estate, especially in prestige office space. However, the last few years have seen a marked downturn in commercial leasing. Property owners may have a harder time locating tenants. Those in need of space request fewer amenities and square feet while simultaneously asking for lower pricing and other landlord concessions.
What was once a lucrative market has now become a liability for those with multiple properties. Investors and commercial landlords may now worry about simply covering maintenance costs, insurance expenses and taxes on their buildings as they attempt to lure new business tenants into the space. One solution that many property owners have begun to consider is to convert existing office buildings into residential space.
Are residential conversions a viable solution?
It seems like every few weeks, there is another announcement about a prior office building undergoing rezoning and construction to turn it into a residential facility. With vacancies remaining relatively high and lease rates low, commercial property owners may see the value in turning office spaces into apartments or condominiums.
There are several challenges to be aware of when contemplating that process. First and foremost is the need to rezone the property or obtain a zoning variance. That process can be unpredictable and time-consuming. If successful, however, changing the zoning is only the first several steps necessary to convert office units into residential spaces.
The building code requirements are vastly different for residential units than they are for office buildings. Property owners may need to invest heavily in the installation of individual HVAC units, additional electrical supply and various other major changes to business infrastructure.
That being said, local demand for housing remains strong. Both condominiums and apartments provide opportunities for ongoing revenue while simultaneously creating property management responsibilities. For many commercial property owners, a building conversion could be a viable solution to frustrating long-term vacancies at office buildings.
Discussing redevelopment projects and looking into local statutes with a skilled legal team can help property owners determine if a conversion is a realistic solution for them. Property owners struggling to generate revenue at specific facilities may need to employ creative solutions to optimize the return on their investments.