As pandemic-era demand for e-commerce continues to skyrocket, Chicago leads the country in converting offices into industrial space. Los Angeles and Boston follow in second and third places.
Millions of Square Feet of Office Space Converted into Industrial Spaces
In a report from Newmark Global Commercial Real Estate Services, we learn that unprecedented levels of industrial demand nationwide have left tenants with a critical shortage of space options. Newmark noted an all-time low industrial vacancy rate of just 4.6% in Q3 2021. On the other side of the equation, the COVID pandemic has only underlined the uncertainty and, in some cases, the obsolescence of the US office market.
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Though not a “new” issue, office vacancies were between 10% and 18% higher in Q3 2021 than in recent quarters/years past. Since 2018, at least 45 office properties totaling 11.3M square feet have been redeveloped or are in the process of redevelopment into industrial use.
Wide Discrepancies in Vacancy Rates Between Office and Industrial Markets
Take a look at the differing vacancy rates between office and industrial markets in some major metro areas:
- Atlanta – 22.2% office; 5.0% industrial
- Chicago – 20.6% office; 5.7% industrial
- Northern Newark – 20.2% office; 3.4% industrial
- Los Angeles – 19.2% office; 1.2% industrial
- Washington DC – 18.3% office; 4.9% industrial
- Philadelphia – 17.4% office; 4.4% industrial
- US Average – 16.6% office; 4.6% industrial
- Orange County – 16.1% office; 2.2% industrial
- Portland – 15.6% office; 4.0% industrial
- Boston – 14.6%; 4.5% industrial
- Sacramento – 11.8% office; 2.15% industrial
Characteristics of Likely Office Property Candidates for Industrial Conversions
According to Newmark’s proprietary modeling and analysis, the most likely office candidates for industrial conversions are older suburban properties with a land area of some 15 – 25 acres located within four miles of a major highway.
Challenges to office-industrial conversions may include zoning restrictions, community opposition and competition from other reuse entities such as healthcare, multi-family and life science markets. Demand, however, favors industrial conversions over both the near- and long-term outlooks for industrial space opportunities.
Select Market Metrics of Office-to-Industrial Conversions
You’ll note below that Chicago leads the nation in office-industrial conversions with Los Angeles and Boston placing second and third, respectively.
Market Conversion Volume Land Area Year Built
Chicago 3.0MSF 24.8 acres 1980
Los Angeles 2.1MSF 22.7 acres 1980
Boston 1.7MSF 30.1 acres 1995
Northern NJ 1.5MSF 14.2 Acres 1983
Orange County 1.5MSF 24.3 acres 1998
Dist. of Columbia 0.7MSF 14.8 acres 1998
Thanks to Newmark Global Real Estate Services and TheRealDeal.