California Leads Nation for Office Adaptive Reuse Projects

California is the top state in the nation for adaptive reuse conversions into office space. According to a new report from Yardi, 595 buildings totaling 41.3 million square feet has been converted into office space in the last 100 years, according to a report from Yardi.

“California is home to some of the largest and most sprawling cities in the country. In addition, the cities of the San Francisco Bay Area, Los Angeles and San Diego are all coastal, with large shipping ports—significant for industrial uses, which are the most common buildings to convert to office use,” Patrick McGregor of Yardi tells GlobeSt.com. “California, and Silicon Valley in particular, has expanded office footprints of tech companies since the 80’s with many occupying offices that were once used for industrial space.”

The report takes a long-term look at adaptive reuse, over the last 100 years. Overall, industrial buildings are the primary candidates for conversion into office, and that hasn’t changed in recent years. “Industrial buildings are the go-to for adaptive reuses to office space,” says McGregor. “Over the last 40 years, industrial areas on the edges of urban cores have been hotbeds for office conversions. With developable space becoming scarcer—and more expensive—these industrial areas have become more attractive. In many cases, it’s also less capital-intensive to renovate an industrial building for office use than to develop a new building from the ground up. A compression in cap rates also made less capital-intensive projects more attractive. Creative space in an old factory is also very marketable.”

Los Angeles is the top market in the state for adaptive reuse, and the second in the nation after New York. “Los Angeles is a large market, but more than that, it’s a port and shipping hub,” say McGregor about why Los Angeles has seen so many adaptive reuse projects. “Manufacturing, storage and shipping have been big business in LA for decades. The shift towards a more services-based economy meant that there were, and still are, many industrial buildings that could be used for offices. The large industrial areas around Skid Row, Long Beach and LAX are close to more developed areas and thereby make adaptive reuse an attractive investment.”

As for the future of adaptive reuse, the pandemic is likely to change past trends in conversion projects. “There’s so much uncertainty now that it’s hard to know what’s going to happen next. Different things can happen in different markets too,” says McGregor. “We’re likely to see different things in San Francisco than in L.A., which will likely be different than NYC. One trend we will likely see in the short- to intermediate-term is an overall de-densification of spaces, both in work and entertainment spaces.”