I have a friend who ran a small
accounting firm in a mid-rise office building off the 405. He had a corner
suite with a view of the freeway—nothing glamorous, but solid. For years, he
paid his rent on time, kept his staff of five happy, and felt secure knowing
his office space was a symbol of his firm’s steady success. Then came the
pandemic, and with it, the great work-from-home migration. By 2021, his lease
was up, and he made a decision that landlords across Southern California now
dread: he let it go.
Fast forward to today, and that
once-bustling office tower is still struggling to fill vacancies. My accountant
friend, like so many others, now operates remotely, with employees who have no
desire to return to a traditional workspace. His old office? A ghost town—one
of many scattered across the region.
The Office Space Dilemma
Southern California’s office
market is at an inflection point. Vacancy rates in key markets like Downtown
Los Angeles, Orange County, and even the tech-heavy hubs of the Westside are at
record highs. According to industry reports, some buildings now hover around
30-40% vacancy—numbers that would have been unthinkable pre-pandemic.
Many landlords are feeling the
squeeze. With high interest rates and declining property values, some are
defaulting on loans or handing the keys back to lenders. Others are scrambling
to repurpose their spaces, but office-to-residential conversions—while a hot
topic—are easier said than done.
The Affordable Housing Mandate and
Office Conversions
California has long been in an
affordable housing crisis, and state leaders see underutilized office buildings
as a potential solution. Governor Gavin Newsom and local municipalities have
been pushing zoning changes and incentives to encourage office-to-housing
conversions. On paper, it sounds like a perfect match: empty buildings meet an
urgent housing need. In reality, it’s a far more complex equation.
Many office towers were never
designed for residential use. Deep floor plates, lack of windows, and outdated
infrastructure make conversions expensive and, in some cases, structurally
impractical.
Developers also face regulatory
hurdles, with zoning laws, permitting delays, and financing challenges slowing
progress.
While some successful
conversions have taken place—such as the historic Tribune Tower in Oakland—most
landlords are finding it more feasible to hold out for office tenants than take
on the massive costs of redevelopment.
So What Happens Next?
The commercial real estate
industry is at a crossroads, and the future of office space will depend on
creative solutions. Some landlords are embracing mixed-use redevelopment,
incorporating residential, retail, and entertainment into former office hubs. Others
are investing in high-end amenities to attract tenants back—think wellness
centers, private clubs, and hospitality-driven office experiences.
But the hard truth is that
Southern California will have to adapt to a world where remote and hybrid work are
permanent fixtures. That means some office properties will never return to
their pre-pandemic heyday. It also means that cities and developers will need
to work together to make adaptive reuse more financially and logistically
viable.
As for my accountant friend, he
doesn’t miss his office much. His firm is thriving, his staff enjoys the
flexibility, and he no longer has to sit in rush hour traffic on the 405.
For him, the office space
reckoning isn’t a crisis—it’s a new reality. And for commercial real estate,
it’s time to figure out what that reality looks like.
Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services
in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104. His website is allencbuchanan.blogspot.com.
