Office supply shifting to residences
Briefing notes point to ongoing office‑to‑residential conversions removing obsolete office stock even as AI redirects capital toward data centers and infrastructure spending. Commentary frames this as a structural supply shift that changes which office products will outperform based on collaboration needs and building functionality. (x.com) (x.com)
Office buildings are leaving the market faster than new ones are opening, as owners convert older towers into apartments and tear down obsolete space. (cbre.com) Across the 58 United States markets tracked by CBRE, 23.3 million square feet of office space was on track in 2025 for conversion or demolition, versus 12.7 million square feet of expected new office deliveries. CBRE said the office conversion pipeline reached 81 million square feet in 44 markets as of May 2025. (cbre.com) Most of that recycled space is becoming housing. CBRE said more than 70% of planned and active office conversions by square footage are headed to multifamily use, and office-to-multifamily projects have delivered more than 28,500 housing units since 2018. (cbre.com) At the same time, money tied to artificial intelligence is moving hard toward server farms and power equipment rather than traditional offices. JLL said on January 5, 2026, that nearly 100 gigawatts of new data center capacity is expected between 2026 and 2030, requiring as much as $3 trillion of investment. (jll.com) Colliers said global data center investment topped $580 billion in 2025, up 27% from a year earlier, while North America absorbed 15.6 gigawatts of capacity, about double 2024 levels. The firm said 40% to 50% of total project costs now go to power infrastructure. (colliers.com) That leaves the office market with less generic supply and a sharper split between buildings tenants want and buildings they do not. Cushman & Wakefield said Class A demand stayed positive through 2025, with 9.2 million square feet of full-year absorption, even as overall United States office vacancy remained high at 20.5% in the fourth quarter. (cushmanwakefield.com) New office construction is also drying up. Cushman & Wakefield said last week that first-quarter 2026 office completions fell 40% from a year earlier, the four-quarter total dropped to 16.3 million square feet, and space under construction fell to 18.6 million square feet, the lowest level this century. (cushmanwakefield.com) Design firms say that is pushing demand toward offices built for in-person work rather than rows of undifferentiated desks. Gensler said workers in its 2024 Global Workplace Survey were twice as likely to report high-performing workplaces in high-quality office buildings. (gensler.com) Not every empty office can make the jump to housing. CBRE said conversion projects are highly building-specific, with floor plates, windows, plumbing layout, tax incentives and acquisition price often deciding whether a tower can be remade at all. (cbre.com) One project shows the scale of the change already under way. CBRE said 25 Water Street in Lower Manhattan, a former office tower, has been turned into more than 1,300 apartments in what it called the world’s largest office-to-residential conversion. (cbre.com) The result is a smaller office market with more pressure on outdated buildings and more leverage for properties that can host meetings, amenities and newer systems. The buildings being removed are mostly yesterday’s product, not the space landlords hope to lease next. (cbre.com)
