In the ongoing recovery from the pandemic, and the normalizing reality that remote and/or hybrid work will continue to exist in much greater numbers than pre-pandemic, office occupancy rates in the Bay Area and cities around the country continue to struggle at well-below former levels. The increasing volume of available office space has coincided with a housing crisis – likewise being felt nationwide – that has been driven by years of underproduction, obstructive zoning regulations, and rampant NIMBY- ism which has made it much more difficult for new housing projects to get entitlement approvals in the first place. With the increase in vacant office building supply and the huge demand for more housing, one of the trendiest topics in the real estate industry and local politics has become office-to-housing conversions.
On its face conversion of empty office space to residential occupancies is a win-win proposition, but in practice there are a myriad of complicating factors that severely limit the viability of office to housing conversions in most cases. The first major obstacle is the Building Code, and the reality that most office buildings are not physically suitable for residential conversions because the building types, floor plans and layouts provide Building Code challenges that cannot realistically be overcome. A second major obstacle are the aforementioned zoning regulations, which in many California cities require amenities like open space and trigger impact fees and other housing fees normally reserved for new construction.
SPUR and ULI San Francisco, in partnership with Gensler and HR&A Advisors, have published a study looking at the various office-to-residential conversion issues, using San Francisco as a case-study for that purpose. While San Francisco has many unique issues specific to the City, the study does a good job of illustrating the obstacles – and potential solutions, to making office-to-residential conversions more
feasible.
Their study is available here: https://www.spur.org/publications/research/2023-03-28/office-residential-conversion-san-franciscos-changing-real-estate
To its credit, the City of San Francisco is taking proactive steps to remove or lessen some of the burdens that their zoning code puts on housing generally, and office-to-residential conversions specifically as well. They have introduced legislation which, among other things, would eliminate residential open space requirements for office-to-residential conversions, and provide pathways for ministerial approvals of such projects to avoid the lengthy and expensive discretionary approval processes that would otherwise be required. There is also pending State legislation that would carve out CEQA exemptions for qualifying office-to-residential conversion projects, which would help avoid perhaps the biggest challenge to new housing projects in California – weaponized CEQA appeals – but that’s a topic for another day. While the SF and CA legislation is still pending, they are a step in the right direction in alleviating the dueling problems of office vacancies and housing scarcity.
The law firm of Allen Matkins has published a very informative “legal alert” with more detail on both the City and State’s efforts on this topic, which is available here: https://www.allenmatkins.com/real-ideas/repurposing-san-francisco-office-buildings-pending-state-and-local-laws.html
The San Francisco “ Commercial Residential Adaptive Reuse program” draft ordinance is available here: https://sfgov.legistar.com/View.ashx?M=F&ID=11889902&GUID=849D86B7-A825-484C-9187-E34F21BF2054