The conversion of office real estate into residential real estate: trends following Covid-19 and the surge in teleworking

The conversion of office real estate into residential real estate: trends following Covid-19 and the surge in teleworking

This report, published by the Banque de France, addresses the evolving dynamics of the real estate market in light of the Covid-19 pandemic, particularly focusing on the conversion of office spaces into residential properties. The authors, Antonin Bergeaud, Jean-Benoît Eyméoud, and Thomas Garcia, work in various capacities within the Directorate General of Statistics, Economics, and Financial Stability at the Banque de France. They analyze the implications of increased teleworking, which has significantly altered demand for office spaces.

The surge in teleworking has led to a notable decline in the demand for office spaces. Following the implementation of social distancing measures in 2020, teleworking became a standard practice, with the proportion of employees working remotely increasing from 3% in 2019 to over 15% by early 2022 in France. This structural change is reshaping urban geography, leading employees to consider living further away from urban centers, thereby affecting residential real estate dynamics.

As the demand for office space decreases, the report examines how this trend might affect the residential real estate market. The correlation between commercial and residential property prices suggests that as office demand wanes, residential property prices could experience shifts. Specifically, the anticipated “doughnut effect” may emerge, where housing prices in suburban areas rise as more people move away from city centers.

Historically, office-to-housing conversions remain limited in France, with only 10,474 conversions recorded from 2015 to 2019. This accounted for just 0.99% of new housing space. Recently, a 1.6% increase in the conversion rate has been noted since the rise of teleworking. The report indicates that regulatory constraints, including administrative approvals and historical preservation regulations, pose challenges to further conversions.

The rate of converting offices into residential spaces varies across different employment zones in France. Regions like Poitiers and Paris have seen more conversions, while other towns like Menton have had minimal activity. The findings suggest that the geographical characteristics of these areas significantly influence the feasibility of such conversions.

The report highlights that without regulatory changes to incentivize conversions, teleworking's long-term impact on the housing supply may remain modest. While some conversions might be financially viable, existing constraints could lead to a preference for demolitions rather than conversions. The authors also point out the environmental benefits of conversions, as they could help lower carbon emissions compared to new constructions.

The study emphasizes that current regulations surrounding office-to-housing conversions are stringent, with local authorities needing to approve any changes. This bureaucratic process often results in increased costs and can deter potential projects. The report calls for administrative incentives that promote conversions to help mitigate climate impacts while addressing the changing needs of the housing market.

In summary, as the landscape of work and housing continues to evolve in the post-Covid era, understanding the dynamics between office and residential real estate becomes essential for fostering sustainable housing solutions in Europe.