SACRAMENTO COUNTY, Calif. — Record-high office vacancy rates coupled with growing housing demand in Northern California are pushing developers to transform unused work environments into living spaces.
The world's largest commercial real estate firm CBRE Group recently reported offices in cities like Sacramento are continuing to face an uncertain future in the wake of the COVID-19 pandemic.
"In Sacramento, a market not heavily reliant on public transit nor heavily populated by the technology sector, vacancy increase occurred rather evenly between suburban and urban submarkets," CBRE Senior Vice President Tony Whittaker told ABC10. "Approximately 28% of Sacramento’s office workforce is comprised of public sector employees, and many agencies are still working from home."
This month, Sacramento County officials have received two applications to convert existing office buildings into housing. Proposed projects include:
- Arden Arcade: 2391 Arden Way Apartment Conversion (9 units)
- Orangevale: 8770 Greenback Lane Apartment Conversion (6 units)
"There is too much office product, and some of the [assets] are cost-prohibitive to bring back to life as office buildings given projected office lease rates and the unpredictable demand," Whittaker said. "A logical solution is to repurpose as residential as we know that demand is high."
Even developers applied last year to build a brand new 125-unit apartment complex in South Sacramento on 8740 Bruceville Road originally planned for office buildings according to the Sacramento Business Journal.
But developing office space into housing in Sacramento hasn't been universally popular.
A 2021 proposal to turn an existing Carmichael office building into an 18-unit apartment was tabled by the Sacramento County Board of Supervisors after nearby residents rallied against the project.
Then-county principal planner Chris Pahule said at the time he was unaware of any successful office-to-housing conversion in the unincorporated Sacramento County at the time.
According to real estate site RentCafe, the number of old office spaces scheduled for conversion into apartments nationwide went from 12,100 to 55,300 between 2021 and 2024.
Recent scheduled conversions in the city of Sacramento include three state buildings along Capitol Mall that Gov. Gavin Newsom announced last year will result in 400 to 800 housing units. The buildings include:
- California Employment Development Department headquarters (800 Capitol Mall)
- California Employment Development Department Solar Building (751 N Street)
- California State Personnel Board Building (801 Capitol Mall)
California workers want home offices
Office-to-housing conversions are a statewide trend that Modesto real estate agent Marvin Wells says will continue as office vacancy rates rise.
"Even real estate agents are working from home," he told ABC10. "There was concern the commercial real estate market would crash because most of these [office] buildings were built before COVID-19."
Not just Sacramento, the Central Valley is also among the California cities impacted by mass office vacancy because of employees working from home.
Stockton, Lodi, Manteca, Modesto and Tracy have more than half-a-million square feet of office space sitting empty according to a 2023 report.
"Certain areas around California have been hit harder than others," Whittaker said. "In some first-tier markets like San Francisco and Los Angeles, downtown submarkets have seen greater vacancy than suburban submarkets."
As residents continue working remotely, prospective homeowners are looking toward houses that can accommodate home offices.
Wells told ABC10 there was concern the office real estate market would crash because so many developments that started before COVID-19 were set to sit empty.
"The days of call centers being in big offices I think are a thing of the past," Wells said. "A lot of clients I speak with who are looking to buy a home don't mind paying a little more to fix up their homes as an office space if it means not paying for gas, commuting or making yourself liable to getting sick on the job."
Whittaker said the cost to turn offices into residences can lead some developers to tearing down the property and starting over.
- Converting an office into residential homes include:
- New building skins to allow operable windows
- Dividing open floorplates to individual residential units
- Adding plumbing for kitchen and bathrooms
- Installing and distributing individual HVAC units
"Decreasing the office supply while solving for the residential demand will be paramount to healthier overall real estate markets across the world, but we’re still fine-tuning the 'cheat code' on how best to achieve this," he said.
