How brokers need to prepare for the changing office landscape
The office sector of the commercial real estate market appears to have reached an intermediate phase of post-pandemic recovery.
On one hand, return-to-work mandates have helped bring office workers back to what were vacant office spaces for the first couple of years after the COVID-19 pandemic sent everyone home.
Additionally, prime office locations, as well as relatively new or modernized offices, are attracting new businesses. However, that still leaves a lot of inventory that wouldn’t be considered to be in a prime location or new enough to bring people through the doors.
There is hope for future office conversions to continue making good use of these otherwise unused or underused spaces. But with the slow pace of conversion, other changes will likely be needed in the office sector. One economist believes subtraction will be a growing trend.
Xander Snyder (pictured top), senior commercial real estate economist for First American, said that while conversion is one way that office space will be subtracted, there are other options as well.
“It’s not just conversions,” Snyder told Mortgage Professional America. “In addition to adaptive reuse, some office buildings are being demolished, especially those that are functionally obsolete or where another use makes more economic sense than a conversion. In some cases, it’s simply cheaper and less operationally complex to knock the entire building down and redevelop anew than to execute on a conversion.”
Finding the right buildings
For some of the same reasons why Class B and C buildings haven’t seen a boost from return-to-work mandates, many of them also won’t be in ideal locations for an office conversion.
In those cases, Snyder thinks that demolitions may also be in play in addition to conversions.
“Not every Class B/C office is a good conversion candidate, so there will be a mix of demolitions alongside a growing number of conversions,” he said. “CRE moves in long cycles, yet the remote work demand shock rapidly created a mismatch between existing supply and lower, and more bifurcated, demand, and this downward adjustment in supply will take time.”
Snyder noted that between Q1 2020 and Q2 2025, approximately 332 million square feet of new office space was delivered. Converted space over that same time period only accounted for approximately 15% of those additions. So conversions aren’t putting a huge dent in this, at least not yet. But that could be changing soon.
“These stock and delivery comparisons explain why conversions haven’t mattered much so far, but the picture changes when you look ahead to the construction pipeline,” Snyder said. “Inventory adjusts slowly, while development activity can shift more quickly. When new office construction falls to very low levels, the number of conversions doesn’t need to be large relative to total stock to matter at the margin.”
If planned conversions are included in the numbers, conversion activity exceeds what’s currently being built, according to Snyder.
“As of the second quarter of 2025, CBRE estimates that about 23 million square feet of office conversions are underway, with another 58 million square feet announced, but not yet started, for a total of approximately 81 million square feet,” he said. “By comparison, 52 million square feet of office space is currently under construction.
“If all conversion projects underway and announced were completed and no new ones began, conversions would outpace current new construction by 56 percent.”
What brokers should know
The office sector will always be one that commercial mortgage brokers will have to pay extra attention to in order to make sure new deals make sense. Snyder said there are several factors that brokers should keep in mind, starting with deals centered around high-quality properties.
“The flight to quality is real, and the market is increasingly bifurcated,” he said. “Demand is concentrating in trophy, truly best-in-class assets, often in the best locations with sought-after amenities, while much of the rest is struggling.”
He also reminded brokers to keep an eye out for distressed properties and be mindful of lease structure and expiration timelines.
“Distress isn’t over, and this is especially true for CMBS where amend-and-extend is structurally harder,” Snyder said. “That suggests that there is additional distress held on balance sheets out there that hasn’t been fully recognized, and knowing which lenders want to exit underperforming exposure versus which will stay flexible and restructure is increasingly valuable to clients.
“Also, look beyond headline vacancy rates to lease structure and expiration timelines. Near-term rollover risk and tenant credit can impact refinancing outcomes even if headline occupancy looks reasonable.”
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