Space exploration

With a surplus of office space on the market, what alternative uses should landlords consider?

Currently, global office attendance during weekdays is just 70%. In Pragma’s new Global Pulse survey, we found just 57% of workers are going into the office on Fridays.

Demand for office space has been shrinking in many cities, whilst the requirements of what companies – and crucially, what their employees – want, is changing, generating in some cases seismic shifts. In London, for example, HSBC will be relocating its headquarters from Canary Wharf to the City of London, because of both underutilised space and changing preference for the type of space occupied. Other occupiers at Canary Wharf have also announced they shall be moving back to the City, such as Credit Suisse and Clifford Chance. Elsewhere in London, Meta paid £149m to break their lease 18 years early on their London office and Jeffries have said the London office market is in a ‘rental recession’ as vacancies are at a 30-year high.

Coworking spaces
With demand from single occupiers for large quantities of space falling, landlords may consider converting existing space into a coworking hub, featuring a café or for buildings/larger spaces, a hotel. Coworking is one of the fastest growing industries due to the popularity of hybrid working. Regardless of market swings, there will always be a demand for coworking spaces if operators consider ways to incentivise people into using the space, such as through diversifying membership options to provide users with affordable and flexible options. A risk to coworking spaces is high competition as it is a growing market and operators need to consider the high costs (e.g. utilities anad staffing) associated with operating a coworking space which could cut into profitability, especially when spaces are not running at full capacity.

For larger vacant spaces or buildings, another concept is coworking hotels which suits the needs of business travellers and digital nomads who seek a good working environment with a stable internet connection. Hotels such as The Hoxton are popular amongst locals and remote workers who use their lobbies as a workspace and cafe. The Hoxton has also introduced Working From_ at their Southwark, London, site which offers members access to a coworking space with office amenities.

University campus extensions
If situated near universities or hospitals, surplus office space can be used for campus expansion or life sciences space. In London, Chicago Booth School of Business has a 4,000sqm campus which utilises the lower floors of Helical’s Bart Square’s 11-storey development. Office spaces can also be converted for life science purposes as there is a growing demand for research facilities especially around universities and clusters such as the Knowledge Quarter in Kings Cross. Oxford Properties and Pioneer Group are turning Victoria House in Bloomsbury Square, into a 220,000-square-foot life sciences hub with 80,000 square feet of office, amenity, meeting and retail spaces.

Gyms and immersive experiences
Converting small offices or rooms into a gym is a cost-effective way to repurpose vacant space. Silofit, based in Quebec, converts small offices into private studios to create an on-demand fitness space that users can book through their app. This method is effective at utilising the current space without the need to make drastic changes to the interior or structure of the space. Costs and competition tends to be the biggest drawback of owning a gym especially since customers seek the latest equipment which can be expensive. Despite this, gyms tend to have steady income throughout the year as its service tends to be subscription based.

Other alternative uses of vacant office spaces include hosting galleries, exhibits and new leisure pop-ups such as immersive concepts and travelling museum exhibits (e.g. Van Gogh: The Immersive Experience). The benefit of running an arts space is the cultural value that it can bring to the community. However, these spaces would sometimes see vacancies between events as exhibitions may not be regularly scheduled.

Conversion to residential
Places around the world such as Chicago are seeing an increased interest in office to residential conversions especially in the central business district as many office operators are losing tenants with a 22.4% vacancy rate in Q1 2023. To give these vacant spaces a new life, the LaSalle Reimagined Initiative (shown above) was introduced to repurpose a part of LaSalle Street’s 5mil sqft of surplus commercial space into a new development of mixed-income housing. However, local Chicagoans are skeptical of this development due to its inaccessibility to greenspaces, supermarkets, retail and transit.

Hence, for residential conversions to be successful, the building should cover mixed uses as people tend to seek high quality public spaces, retail, and F&B within the area or the building they live in. Moreover, a mixed-use space with a live-work-play community concept can drive footfall and spend in areas that would otherwise be vacant. Though these office to residential conversions may sound easy, it can be complicated as there tend to be logistical issues with electricity and plumbing as well as structural issues such as larger floorplates that are more difficult to dive into singular apartments. And secondly, there are high costs associated with redesigning and constructing the building to make it a liveable space.

Ultimately, like many of the projects that Pragma has engaged in, an assessment of the current office space and surrounding provision, catchment and the needs of potential users is required to make a holistic decision of what type of conversion would suit the area and inform the future use of the building.

Hui Wen Lim