Work From Home has big impact on commercial core of American cities according to New York Magazine
Article in New York Magazine gives details of impact that work from home movement has had on central city office space and also details and difficulties of conversions to residential use

[https://nymag.com/intelligencer/2022/12/remote-work-is-poised-to-devastate-americas-cities.html](https://nymag.com/intelligencer/2022/12/remote-work-is-poised-to-devastate-americas-cities.html)
[{"id": "j27iidv", "text": "Bleak. But they did hit the main points pretty well. I've been pretty busy explaining why we're seeing limited conversion starts as yet, and my take is that basically it's because the office market hasn't shaken out yet. Rents, for instance, have been a lot stickier than expected, as has pricing. \n\nThe article cites a 39% decline in pricing over the long-term based on a study from the Stern school. Honestly, I'm not scoffing at that. But CRE pricing takes so long to react that we're barely seeing declines at all. Caps are definitely up, but they're up for all property types, see interest rates. Office is definitely bending, but I haven't seen it break yet. I do think the storm is coming.\n\nThat difficulty in converting office to MF is no joke, though.  In cities like Philly, Chicago, and NY there are definitely 50s-70s builds with huge floor plates that are just not going to work very well for conversion. I stayed in a hotel in Dallas not long ago, right next to City Hall, that was a conversion. It was fine, leaky roof aside, and the crazy high ceilings were kind of cool. But I definitely noticed a *ton* of wasted space on the interior. I estimated enough for maybe 10 more rooms on my floor.  Maybe they're using that for something, who knows, but it's probably not as good as more hotel rooms. Yet the conversion happened.  Maybe the same logic can apply to older office buildings, maybe that interior space becomes self-storage, but it still probably means those buildings have to lose a lot of value before a conversion is economical. Maybe even 39%.", "replies": [], "depth": 1}, {"id": "j28iv2b", "text": "Decent article but the writer does not have a true CRE background and doesn\u2019t explain a lot of other factors. Also to note they compared NYC\u2019s MTA but you can\u2019t look at that, you need to look at metro north, LIRR and NJ transit because a lot of people left the city. Ridership in NYC is much closer to pre pandemic levels when you factor those in.\n\nCan\u2019t remember the source, saw it on a slide being presented by a PE firm.\n\nEdit: kept reading the article.\n\n-  he doesn\u2019t talk about the increase in cost of debt as a reason for widening cap rates. To keep things simple in the big time CRE world, floating rate coupons went from ~300bps for office to ~8-9% depending on the location, tenancy, and class a,b,c nature of the property. \n\n- the whole re-zoning to resi is not as easy as the writer makes it. NYC already has special districts, for example the midtown specialty district that allows for resi. However, sure the city can provide capital for the conversion but it doesn\u2019t solve a lot of issues. 1) you need to get the current owner to covert to resi and if they do will they exit at breakeven or better, 2) the buyers basis for a conversion needs to be low enough to spend the money to convert, 3) if the city were to provide the capital they would go BK, 4) lower tax base if conversion to resi.\n\n- Class A office is doing just fine in NYC. Occupancy rates are 95%+ with high usage of space. \n\nIn short, it\u2019s much more complicated than it seems. It\u2019s a great solution to the housing crisis and has been done before but it\u2019s not a simple path.", "replies": [], "depth": 1}, {"id": "j29hv5o", "text": "I\u2019m a strong believer that work from home will fade. I went to a fascinating lecture on office Re at this years ULI convention, the speaker explained how work from home will end exponentially. The explanation was along the lines of: when the younger generation that lost socialization in school reaches the work force they will want to go into the office. After they have been there a while and get promoted over the work from home folks because their boss actually recognizes them, people will be forced to come back in even if they are not actually required to.", "replies": [{"id": "j29yowv", "text": "I think that depends highly on the industry.  Investment banking, sure, but not all industries are the same.  In addition, you aren\u2019t mentioning what happens when the top boss is mostly remote because they wouldn\u2019t move, and if most of your meetings in the office are from a conference room, being on your own computer actually provides more visibility.\n\nMany companies are focused on providing employees with options as it comes to where you work, and the highly educated and skilled who can work from home will make that a big part of their desired value proposition.\n\nIn addition, many promotions now come with company movement, so why continue to eke it out hoping for a raise, when you can hop in 2-to-3 years, and get a promotion and a better pay raise.\n\nLastly, ULI is incentivized to have people go to the office, so obviously they will provide a perspective that is pro office.  Want to know where we\u2019ll be working in the future?  Talk to HR.  They are hiring the people, and hear what is important.  If you\u2019re in banking, those dinosaurs will require coming into the office, but for many other types of jobs, hybrid is most likely where the future lies.", "replies": [], "depth": 2}, {"id": "j2a53js", "text": "I mean the super obvious rebuttal to this is that a younger generation that lost socialization in school will find that lack of socialization to be the norm.  \n\n\nI actually think neither that line of reasoning, or my rebuttal are valid. Both infantalize young office workers by assuming that they don't understand the advantages of work from home and that they're so thirsty for a cold frosty beer with their best friend Devon who works in the cube next to them &lt;/s&gt; that they're willing to spend the time and money on a commute. \n\nFinally, on a pedantic note, this speaker is literally already so wrong and was wrong from the get-go if they said \"exponentially\" because if growth in return to office was really exponential, we'd all already be back in the office for 200 hours a week or more. RTO is not even occuring linearly - using the term \"exponentially\" merely reveals that they're not super strong with math.", "replies": [], "depth": 2}], "depth": 1}, {"id": "j2acf8b", "text": "I'm hoping to hear from others on this sub who have actually participated in converting excess office and other kinds of commercial space to residential use. If you've worked on these kinds of projects could you please share your experience .\n\nLiving on Maui, the residential housing crisis is beyond comprehension. There is literally no place for our workforce to live and many of them are fully employed but actually sleeping in their cars or living rough in homeless or near homeless situations.\n\nAdd to that an ever expanding actual homeless population, some of whom are the working poor, but many who are addicted, mentally ill and sometimes both.\n\nAt the same time as we have literally acres of vacant commercial space. Our Sears closed, it is vacant and sitting empty. Our biggest central mall is more than half empty, there are plenty of very old but badly maintained warehouse spaces, all still asking top dollar NNN.\n\nI'm a broker, I sell more commercial than residential. I do almost no leasing. The only asset class where I see more demand than supply is industrial, there is no place for the small independent business to transition from tenant to owner, and the island is flooded with people who seemingly have unlimited financial resources.", "replies": [], "depth": 1}]