Two years ago, with the office real estate market in Austin stuck at a 20 percent vacancy rate, Brad Stein took the first of two trips to other markets to see if some of the hundreds of thousands of empty spaces in downtown Austin and areas beyond could be converted into badly needed housing stock. What Stein saw in a 2022 visit to Chicago and another trip to Dallas last year was that housing space and office space are two very different puzzle pieces that don’t fit together without considerable and expensive alterations.
Stein and other real estate experts who spoke with the Austin Monitor said it would take a precise mix of factors to make those conversions make economic sense locally.
Among them:
•Properties need to be 30 to 40 years old and already in need of significant renovations and improvements;
•Only buildings with floor plates of 15,000 square feet or less offer the ready access to windows and egress needed for residential use;
•Vacancies would need to be high enough to force owners to essentially give away a distressed asset at or below its land value.
Unless an owner is several years or even decades into owning a building that is only half full, Stein said it’s unlikely that the time and cost of a conversion would be in any way attractive. Since the surge in Austin office space has taken place in the last 10 to 20 years, owners would rather wait out a downturn instead of taking on substantial new costs or exiting a project at a loss.
By most industry measures, office space in the Austin area sits at about 20 percent vacant, though that number doesn’t take into account the amount that has been subleased by major tenants who had signed on for full occupancy of some new buildings and then changed course. Aquila Commercial listed the central business district vacancy rate at 22 percent in March, with the Domain having the lowest area vacancy rate at 11 percent.
The biggest obstacle to putting beds in place of desks and work stations comes from the far different space needs for the two uses. Centrally located bathroom banks won’t work for residential properties that aren’t offered in a dormitory style, which means expensive new water lines are needed throughout the structure.
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