**U.S. Office Inventory Declines Amid Conversions and Demolitions**
The long-discussed strategy of converting underutilized office space into other property types appears to be paying off, as new data suggests these transitions are playing a key role in reshaping the commercial real estate landscape. A new report from CBRE, titled *”Conversions & Demolitions Reducing U.S. Office Supply,”* reveals that office conversions and demolitions are projected to outpace new office construction in 2025—a development seen as essential in easing high vacancy rates and supporting the broader recovery of the office market.
According to CBRE, in the 58 U.S. markets analyzed, a total of 23.3 million square feet of office space is either scheduled for conversion (12.8 million square feet) or demolition (10.5 million square feet). Comparatively, only 12.7 million square feet of new office supply is expected to be delivered during the same period.
The report notes that this trend has been steadily gaining traction over the past decade and has accelerated in the wake of the COVID-19 pandemic, as remote work and changing business needs have shifted the demand for traditional office environments.
Key findings from the report include:
– 76% of office conversions are planned for multifamily residential use.
– 8% are being repurposed for hospitality.
– 4% are being converted to industrial space.
– 3% are being transformed for life sciences.
However, the extent of conversion activity varies greatly by market, influenced by factors such as property values, age of existing inventory, construction costs, and the availability of experienced developers.
Despite the promising signs, the study cautions that office conversions are not a catch-all solution. Not every building is suitable for adaptive reuse. Many of the structures being demolished were built between the 1970s and 1980s and feature large floor plates that limit their flexibility for conversion. These buildings represent over half of all planned demolitions but only around 35% of the conversions.
Additionally, high interest rates, escalating construction costs, and a tight labor market are impeding development activity. CBRE analysts suggest that many developers may choose to delay projects until economic conditions become more favorable.
While the reduction in office inventory through conversions and demolitions is a positive step toward stabilizing the market, the transformation of the office sector remains a complex and evolving challenge.
