Housing market leader Freddie Mac estimates that the U.S. is approximately 3.4 million units short of for-sale and for-rent units. According to the U.S. Census Bureau and Reuters, single-family housing starts were down 7 percent, from 1,005,000 to 935,000, from May to June, its lowest rate in two years. Multifamily starts also fell 11.6 percent.
When Aaron Jodka, director of national capital markets research for Colliers, joined the Engineering Influence podcast, he reported that office vacancies were escalating to “an all-time high,” leading to “softness in the office market.” Newer Class A property types are in high demand, therefore, “90 percent of tenants are looking for 10 percent of the space.
“There’s less occupied space this quarter than there was the quarter before,” Jodka said. He noted that the U.S. office vacancy rate is 16.4 percent, a 30 basis points increase from the first quarter.
With softening office demand and a residential market experiencing a supply shortage, adaptive reuse becomes a potential solution for both markets. (See charts for markets with the highest office vacancy rates and the highest affordable housing shortages for conversion opportunities.)
When looking at the adaptive reuse of office space into multifamily residential units, Jodka said, “It’s a great idea, and it’s a really interesting concept. It will work in certain pockets, but it won’t in others.” Office conversions come with their own design challenges and price tag. From a design standpoint, engineers and architects will have to consider structural requirements, ceiling heights, permitting, windows/daylight, floor plate sizing, and potential “coring” out the building.
Jodka outlined what the process would entail for potential investors: “You need to acquire the building, then you need to rehab it, and repurpose it. That could be anywhere from $450 to $650 per square foot, potentially more.”
This becomes a capital discussion. Developers want to know if the asset is lucrative and if they can sell it in the future. Overall, office to multifamily residential units seems like a promising concept, but it’s not without its challenges.
Mass timber is the latest structural design trend setting its sights on the education market. When we last covered mass timber in fall 2019, it was trending in mid- to high-rise buildings in the commercial real estate sector. There were a reported 221 mass timber buildings under construction with an additional 378 in the design phase. As of today, 1,860 projects in the U.S. have used mass timber. There is currently a project in design or a project that has been constructed in each of the 50 states.
Developers and designers are choosing mass timber over steel and concrete because of these benefits:
Educational institutions are also turning to mass timber because of these benefits:
As of 2021, the mass timber market was worth $857 million, and it is expected to reach $1.5 billion by 2031. Mass timber buildings are expected to double every two years through 2034. According to the World Green Building Council, buildings account for 40 percent of carbon emissions. A popular solution called cross-laminated timber is a prefabricated and engineered wood that captures and stores carbon dioxide instead of emitting it like traditional building materials, including steel and concrete. If this growth keeps pace, the construction industry could store more carbon than it emits.
Commercial & Residential Real Estate
Intermodal & Logistics
Energy & Utilities
Health Care & Science+Technology
Economic Outlook
Education
The Private Side column in Engineering Inc. focuses on the private-sector markets listed above, and information and insights on economic data relevant to the industry. For more on these topics, subscribe to ACEC’s bimonthly Private Industry Briefs: https://www.acec.org/resources/private-market-resources/#newsletter.
Diana Alexander, CPSM, is ACEC’s director of private market resources. She can be reached at dalexander@acec.org.