U.S. developers have 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, according to a recent CoStar Group report.
Which begs the question : “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 re-thinking the demolition of these older office buildings and opting to convert the spaces into residential units 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. Could Detroit be the next viable market for these endeavors?
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.
An interesting trend to follow.