In 2020, with the pandemic in full swing, many predicted that hybrid working would cause cities to empty out as office occupancy rates plummeted and businesses vacated or downsized premises.

Chase Garbarino

Chase Garbarino

Office buildings stood empty, occupiers were defaulting on rents and leasing was at a standstill. Moreover, with employees comfortably working from home, the future of the workplace seemed unclear. In turn, pressure mounted on property owners to convert office spaces to residential use. Boodle Hatfield reports that the number of office buildings approved for conversion to residential housing in the UK jumped 24% between 2020 and 2021.

In theory, it seems like a neat solution. After all, office vacancy rates remain at a 10-year high. But take a step back and it quickly becomes clear that residential conversion isn’t the commercial real estate (CRE) sector’s silver bullet. What seems straightforward on paper isn’t the most plausible path forward. Instead, it is a focus on real estate experience that will bring a new lease of life to office developments, and CRE as a whole.

Research from CBRE reveals that the conversion of vacant London office stock could deliver 28,000 new homes to the market. Yet four years on from the start of the pandemic and the mass uptake of residential conversions has yet to fully materialise. Among the key reasons for this are the fundamental structural issues with this type of conversion that make it deeply impractical and expensive to implement at scale.

Two big hurdles include heating, ventilation and air conditioning, and plumbing. A typical office building will only have a small number of bathrooms and a single kitchen on each floor. The type of redesign to provide every individual home with a kitchen, laundry facilities and bathroom would be extremely cumbersome and costly.

Furthermore, many commercial buildings simply don’t have the floorplates allowing for this type of renovation. Meeting residential building regulations is no easy task when it comes to converting office space, and many corporate design elements do not translate well into a residential setting. Subdividing large open spaces intended to allow for ample desk space and communal working areas, while also opening up windowless spaces, to provide natural light for residents attracts a hefty price tag.

While the pandemic may be over, because hybrid working transformed our thinking on where and how work gets done, its effects on CRE will no doubt be long-lasting. As an indication, Leesman’s Corporate Real Estate Leaders poll suggests 69% of respondents intend to reduce their real estate footprint over the next 18 months.

Despite this, increasing numbers of employees favour some kind of return to the office. Although most organisations agree that the five-day office week is dead, research from Statista shows 73% of British workers travel to work. Owl Labs reveals only 16% of companies across the globe are fully remote and even Zoom has asked employees to work in person at least a few days a week.

So given the growing desire from both employees and employers to return to the office in some form, and the fundamental challenges of office conversions, it’s safe to say residential use is not the right way to remedy CRE’s woes.

Instead, the real estate experience should be reassessed. Importantly, this involves putting occupier experiences of the spaces they use at the centre of property owners’ and occupiers’ strategies for attracting occupants and refilling their buildings.

People must see and feel that the experience of engaging with the physical spaces and digital resources they use at the office vastly outweighs the comfort of homeworking.

Vitally, people want to feel supported with easy-to-access amenities, simple-to-book activities and a space that helps build community. For younger professionals this is especially important. Leesman indicates that 40% of under-25s feel little connection to their organisation and nearly three quarters have no dedicated home office setup. Occupiers and owners must also arm themselves with the tools and data to enable them to continually improve spaces over time.

There is a long future ahead for CRE, but it’s not conversion to residential. To be successful, owners and operators need to use innovative technology and data to better understand their employees and build superior experiences. Simply put: for employees, the journey into work must be worth the effort.

Chase Garbarino is co-founder and chief executive of HqO