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Commercial Real Estate: A Solution

For anyone that reads anything about Real Estate in the United States, typically they will read or hear things like, “Housing Crisis”, “Lack of Affordable Homes”, “Sellers Market”, and other aspects to accentuate what is likely to be best described as a “doom and gloom market.”  Certainly, there is some merit for all of these descriptions.  So reducing it to the clearest point, there is a shortage of homes for buyers. Everyone will agree on this.  Now let’s move over to the commercial sector.  With very few exceptions the opposite is true.  With the scourge of Covid behind us and the advance of technologies, many businesses discovered that a lot of their employees could work remotely. There was just so much less of a need for personnel to physically come into the office. More and more firms are getting stuck with leases on properties they really don’t need and frankly there’s a glut on the market, commercially.

Enter the magical solution: why not use a lot of this commercial space and create housing units?  We have seen how lofts in so many cities have been converted to living spaces, and places like Soho and Tribeca in NYC have been doing this for over 40 years.  Buffalo has finally smartened up and we are seeing significant strides in this area. And just about every major city has commercial space like this and they are begging, make that screaming, for a conversion.  I have seen churches getting retrofitted to housing units and many of these conversions are among my favorites since the architects can take advantage of soaring and frequently vaulted ceilings.  One trend I am impressed with is seeing how failing Malls are becoming Lifestyle LivingCommunities.  These emerging centers offer all kinds of plusses and incorporate the best of both worlds, with shops and pharmacies adjacent to housing units. But as much as making conversions on commercial properties offers a partial solution to the housing crunch, there are some significant hurdles to overcome but which is the biggest?

Whatever solution we use, the greatest challenge will be making the units “affordable.”  Construction costs are high. Granted, commercial construction costs tend to be higher in general but both commercial and residential costs are going up across the board.  As the gap between the working class and the upper class widens and the middle class shrinks (especially because of inflation), building for the target market of lower to middle class becomes increasingly more difficult.  If you look in our own backyard in 716 Land, you will see many new construction communities. What you won’t see is new construction communities that are affordable and certainly not so for the first time buyer.  Virtually all of them are priced over $400,000 (and way beyond.)  Even where you see them advertised as starting in the $300’s, if you throw in  a few extras, you most likely will crest the $400k mark. It’s a challenge.  Regardless of how quickly developers jump on to this proposed trend, owners of commercial Real Estate are going to have to come to terms with their investment. What will they do if there is a decreased need for office space? They can let it sit vacant, and wish for a miracle or they can seek out new users (who might just need a place to live.)

“Hey, I wrote the book on Real Estate, literally.”

Author Brendan J. Cunningham is a New York Licensed Associate Real Estate Broker, lead of the Platinum Team at HusVar Real Estate, as well as an accomplished writer, Shakespearean trained professional actor, and podcaster.
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