As we have discussed many times on this blog, the current pandemic has impacted many segments of the economy and forced some adaptations. The real estate market is no different. In South Florida, the residential real estate market has been red hot as many Americans opt to live in paradise while working remotely. This has resulted in an increased demand for rental properties as well as properties for purchase.
One segment of the market that has been negatively impacted by the pandemic is commercial real estate. In particular, office space demand has decreased substantially as more and more companies transition to a work from home environment. As a matter of fact, many companies are realizing that they are equally, if not more productive by having their employees work from home.
What about all the commercial space available?
Affordable housing continues to be an area of great need across the country. With this said, we are seeing an increase in the amount of empty commercial real estate as well. One proposed solution being discussed by lawmakers involves converting empty commercial space to residential units. In theory, this would address both items as once. Recently, Housing and Urban Development Secretary Ben Carson called for developers to collaborate with city officials and local councils on developing new projects that will address both of these issues.
In big cities across the nation such as Miami, Boston, Chicago, and Houston, we are seeing an increased focus on commercial to residential conversions. Although it is quite unfortunate to see the negative impacts on the commercial real estate market, perhaps addressing the need for affordable housing will be the solution.
Landlords are looking to convert properties that were originally intended to be occupied by commercial tenants, which made sense in a different market. The current economy is forcing landlords to pivot and unexpectedly spend dollars toward capital improvements to support a new demand for residential occupancy. In the end, occupied residential units are still better than empty commercial units.