The Inside Look with Xander Snyder - Episode 27

Office conversions have emerged as a prominent theme in commercial real estate as investors, developers, and policymakers search for solutions to elevated office vacancy rates and changing space demand. While conversion activity has accelerated since the pandemic, questions remain about whether these projects are occurring at a scale large enough to materially impact office market fundamentals.

In this episode of The Inside Look, Principal Commercial Real Estate Economist Xander Snyder examines the role of office conversions within the broader office market, comparing conversion activity against total office inventory, new supply deliveries, and the future development pipeline. The analysis explores why conversions have had a limited effect on national office market conditions to date and how declining office construction starts could increase their influence in the years ahead.

Key topics include office-to-residential conversions, office supply trends, commercial real estate development, vacancy and utilization dynamics, and the outlook for the U.S. office sector.

Hi, I'm Xander Snyder and this is First American's Inside Look.

Office conversions remain one of the most talked-about topics in commercial real estate today, and the logic behind them feels fairly intuitive. If office demand has fallen, why not remove some office space from the market and convert it into other, higher-demand uses?

Office conversions are happening, and more of them are occurring than before the pandemic. However, nationally, office conversions still have not been large enough or occurred in sufficient volume to materially change office market fundamentals.

To understand why, it helps to look at the scale of conversions relative to several office market metrics, each of which provides a different perspective on the office conversion story.

Let's start with the overall size of the office market. At the beginning of 2020, the United States had approximately 7.9 billion square feet of office inventory. Over the last five years, about 52 million square feet of office space has been converted to other uses across major markets, according to data from CBRE. While that is a meaningful amount of space in absolute terms, it represents only a 0.7% reduction in total national office inventory. That helps explain why conversions have not significantly changed national market conditions.

Another reason conversions have not moved the needle nationally is that the office sector has continued adding new supply. From the first quarter of 2020 through the second quarter of 2025, approximately 330 million square feet of new office space was delivered. Over that same period, conversions offset only about 15% of those additions. Despite weaker demand, the market was still bringing substantially more office space online than it was removing through conversions.

The story begins to change when viewed relative to future supply. New office construction starts have fallen sharply and are now near multi-decade lows. This matters because when construction slows enough, conversions do not need to be large relative to total inventory to start affecting market fundamentals at the margin.

As of the second quarter of 2025, approximately 23 million square feet of office conversions were underway, with another 58 million square feet announced but not yet started. Together, that represents roughly 81 million square feet in the conversion pipeline.

By comparison, there were about 52 million square feet of office space under construction during the same period. If a meaningful share of those announced conversion projects move forward, conversions could begin removing more office space than new development adds. While that would not immediately resolve the office market's oversupply challenges, it would begin to alter the direction of net new supply.

Office conversions are real, and they are becoming more common. However, they have not yet been large enough to offset the post-pandemic decline in office demand or the wave of new supply that continued delivering after 2020.

Where conversions may begin to matter more is during the next phase of the office cycle, particularly if new construction starts remain very low and more announced conversion projects move into active construction and completion. In that environment, the next chapter of office development may be defined not by new additions, but by subtractions.

Thanks for joining me on this episode of The Inside Look. We'll see you next time.