We Can’t Understand The Urban Housing Shortage Without Recognizing The Office Surplus

This is something cities are going to have to grapple with (boldface mine):

DC has around 14.1 million square feet of vacant office space, and 8.2 million square feet of it is in the downtown area. That’s equivalent to more than two Pentagons worth of empty offices.

The DC Council will soon consider a bill that would incentivize owners to convert a portion of that empty office space into much-needed homes…

Since the Great Recession, the District’s office market has experienced vacancy rates above 11 percent, and the total area of vacant office space has reached over 14 million square feet. As recently as last month, the office vacancy rate in the DowntownDC and Golden Triangle Business Improvement Districts was 10.3 percent and the total vacant office space was 8.2 million square feet–almost double the vacant space at the end of 2006.

This abundance of vacant space is unlikely to decline. There are more than 5 million square feet of office space under construction, meaning that older office buildings will likely continue to be passed up by business renters.

What is more, the private sector and the federal government simply don’t need the same amount of space they once did. (There is a lot less physical file storage and rooms full of secretaries these days.) Even if an business or agency did need the space, there is plenty of cheaper competition in Virginia and Maryland. Northern Virginia has 32.6 million square feet of vacant office space, and suburban Maryland has 12.4 million square feet.

On the flip side, there are very few homes for rent or purchase in the downtown area, something particularly frustrating given the dramatic shortage of homes and affordable homes the DC region is facing.

D.C. is considering offering tax abatements for owners who convert offices to apartments. An alternative might be to tax vacant business properties at a higher rate (something D.C. already does for vacant houses). Meanwhile, new office space is being built, which, if it were housing instead, could be 1,800 two-bedroom apartments per year.

Historically, D.C., after the riots, destroyed a lot of housing and turned into office space (e.g., South of Dupont Circle). Cities often did this as they lost population, since office space can generate a lot of taxes, while having relatively few expenses (e.g., no kids to educate). That probably was the only way cities could survive after the flight of manufacturing in the 1960s, and the massive federal defunding starting in the late 1970s. But we’re paying for it now, as cities desperately need more housing.

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One Response to We Can’t Understand The Urban Housing Shortage Without Recognizing The Office Surplus

  1. Felicis says:

    Has that excess supply led to a drop in office-space rents? I suspect not. (It is not an easy question to answer with a google search, but the little I have sound suggests asking rents per sq foot were increasing in 16 at least…) So much for the ‘law’ of supply and demand…

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