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Can California's empty commercial space be turned into housing?

Posted at 8:38 AM, Jul 17, 2021
and last updated 2021-07-17 11:38:42-04

SAN DIEGO (KGTV) — With California now reopened some employees are returning to the office. So the days of empty desks and buildings could be over — right?

It's hard to believe that in March of 2020 so many people just got sent home to work. Office spaces went from packed to barren. That was supposed to be temporary.

"I don't think anyone had the expectations that it would be such a prolonged event," said Tim Olson, a senior managing director at JLL and the San Diego market lead. JLL is one of the largest commercial real estate companies in the world.

"I think by and large the office is not dead I think through COVID we've heard are people ever going to go back to work, right and I think the answer is yes," added Olson.

According to their research in the San Diego area, with the economy reopening, tenant demand and rents show signs of recovery. New development and biotech conversions pushed average asking rents to new levels. And employees returning to the workplace has correlated with an increase in leasing activity and a decline in sublease space.

California is still a place to do business and in person. But that's not all buildings.

Right now, California lawmakers are looking at ways to take empty commercial space and use it to help close the state's housing gap. One idea would allow building new multi-family housing on already zoned developed commercial properties.

"Potentially, in an instance where it's an antiquated office building that can be converted to a condo, that would be a unique outcome. I think more so it would be the land beneath that commercial property where there's a re-entitlement or an upzone," Olson said.

The idea isn't too farfetched. ABC 10News' sister station in Tucson spoke with a commercial real estate company that had this take: "I have a client that's looking into the idea of converting a vacant office property, it's a significant property over 100,000 square feet, a large campus environment. So they are looking at how that could convert and trying to make the numbers work."

For now, that would be the exception, not the rule.

Does the state need to figure something out? Yes. With many companies moving from home to hybrid to reentry, the data show the days of empty spaces may be numbered.

"I think the commercial market will remain what it is. We have time to recover from covid - certain markets are faring better than others but in large part, we'll see a return to demand for office," Olson said.

JLL's information shows not every place is the same. While Los Angeles is seeing growth in the commercial real estate market San Francisco isn't. San Francisco’s office vacancy is now over 20%, the highest in the Bay Area and the highest it has been since 2003 after the "dot com" bust.