It’s no secret that the office sector continues to experience its share of challenges. The combination of higher vacancy rates and lower utilization, coupled with decreased financial viability, is turning many properties into what the Boston Consulting Group (BCG) dubs “zombie” buildings. In a recent article entitled “Countering the Curse of Zombie Buildings ,” BCG director Santiago Ferrer and colleagues noted that buildings become zombies when “vacancy rates and unused space under lease drive utilization to 50% or less.”
Ferrer stated that all cities will be impacted by this phenomenon; however, those like New York City, San Francisco and Los Angeles are likely to feel it more due to their high real estate values as well as mix of jobs such as tech roles within these geographies. According to BCG research findings, average vacancy rates are at 17%, while utilization has fallen down 42%. This decline is attributed primarily due “at-risk” space – i.e., an enormous amount of leased spaces unlikely for renewal in coming years – with 60% leases expiring within three years from now on top rising interest rate creating need for refinancing yet newer debt being more expensive than before pandemic times leading up fall in building values by 40% over next 12-36 months along with rise in defaults .
To counter this potential zombie (building) apocalypse action needs taken now according Ferrer: Building owners must understand impact across portfolio taking steps towards repositioning structures so they can attract new tenants or re-develop them for different uses while municipalities should lend hand bringing own workers supporting developers repurposing buildings ensuring safe clean spaces ultimately mitigating through collaboration between owners municipalities revitalizing downtown areas some cities like NYC having already formed task forces focusing on downtown revitalization plans if nothing done further decrease office building utilisation erosion CRE value expected .
