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Insights

Obsolescence Equals Opportunity

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Much has been written about the potential death of the office, with justifiable concern that some office properties may never again be fit for their original purpose. Running counter to the doomsday narrative is Cushman & Wakefield’s new publication, Obsolescence Equals Opportunity. In it, we offer a perspective focused on the upside potential for owners who are able to meet the market’s call to action. 
This study breaks new ground by quantifying the U.S. office market for its potential, with current and anticipated supply juxtaposed against trends in demand. We find an unprecedented imbalance in supply and demand which, by the end of the decade, will result in a surplus of 330 million square feet of vacant office space that hasn’t kept pace with demands to support hybrid working and efficiency/ESG priorities.  The imbalance in demand is further accentuated by a growing quality gap: demand for high-quality office product that can accommodate hybrid strategies and provide a strong in-person experience is dramatically higher, while demand for product that cannot meet modern-era tenant requirements is dramatically lower. 

Shifting Opportunities 

While the bulk of office space in the U.S. needs to consider its competitive positioning, not all is lost for those facing headwinds. Owners and investors focused on proactively addressing such challenges will be able to recover value and generate returns. By exploring opportunities to reposition or repurpose, no shortage of opportunity exists with the right partners for strategy, funding and execution. Through case studies and deep dives into the sectors such as life sciences, healthcare and multifamily, Obsolescence Equals Opportunity explores alternatives for repositioning and repurposing. 

Repositioning  

Repositioning strategies are among the least costly and most efficient strategies for bringing an obsolete office property up the value and relevance curve. However, it does require experience and insight to ensure any investments are the right size and in the right areas to meet tenant demand in the local market.  

Repurposing  

Depending on the market, submarket or property, an asset may not be a strong candidate for repositioning strategies, either due to the competitive landscape or due to the building’s physical characteristics. Owners of assets that are candidates for repurposing should thoroughly estimate project costs, demand-side potential and exit value assumptions in the next part of the evaluation phase. 

Authors

Abby-Corbett-Headshot
Abby Corbett

Head of Investor Insights
Denver, United States


+1 (720) 2441061

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Kevin Thorpe Washington DC Chief Economist
Kevin Thorpe

Chief Economist
Washington, United States


+1 (202) 266-1161

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David C Smith (image)
David Smith

Head of Americas Insights, Global Research
Atlanta, United States


+1 (404) 853-5310

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Related Projects

obsolescence-case-study-1
The Vacant Behemoth

Total Budget $20 Million

  • Transformed quality of space and amenities to attract tenants
  • Commitment to quality and detail was key throughout execution
  • Common area amenities and alternative work areas were  appealing to tenants
obsolescence-case-study-4
Office Campus to Industrial​

1984-vintage office asset purchased for $16 million ($55/sf) later sold for $128 million ($441/sf)

  • Extensive renovation transformed the property from an office for Bank of America to a distribution warehouse
  • Fully occupied by Amazon through 2036 with 2% escalations on triple net basis
obsolescence-case-study-3
High-Rise Mixed-Use

The 1.4 msf office building sold for loan loss of $107 million, purchased for $4.5 million in April 2022.

  • New plan to convert the tower into apartments and hotel
  • Adding other amenities while also keeping a portion of the tower as office space
  • Workplace strategy increased marketability of multi-tenant floors
obsolescence-case-study-2
1980s, 3-building​ Full-Repositioning Play

Total Budget $45 Million

  • Total renovation and repositioning of 3 buildings
  • Focused on amenitization and activation of space
  • Beyond renovation, created a significant tenant experience/community management program
obsolescence-case-study-5
High-Rise Office to​ Partial-Clinical Office

Total Budget $10 million, Chicago’s iconic Hancock Tower

  • Convert 4 floors to healthcare uses while reconfiguring components of the asset to accommodate a surgery center and other clinical uses
  • Now in lease-up witnessing strong interest

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