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The conversion of office real estate into residential real estate: trends following Covid-19 and the surge in teleworking is a comprehensive report published by the Banque de France, authored by Antonin Bergeaud, Jean-Benoît Eyméoud, and Thomas Garcia. This bulletin explores the emerging trends in the real estate market due to the rising prominence of teleworking, particularly in the aftermath of the Covid-19 pandemic.
Shift in Demand for Office Space
The pandemic has led to a significant surge in teleworking, with the number of employees working from home increasing from 3% in 2019 to over 15% by early 2022 in France. This shift has resulted in a decline in demand for office space, prompting discussions on the potential conversion of these spaces into residential properties. The report notes that in 2019, 468,111 square meters of office space were converted into housing, and a 1.6% increase in conversion rates is expected since 2020. However, the occupancy rate for offices has fallen by 5.4% since the onset of the pandemic, indicating a structural change that could influence urban geography and housing dynamics.
Interconnectedness of Real Estate Markets
The residential and commercial real estate markets share several common determinants, such as geographical location and positive externalities linked to agglomeration. The researchers found that residential and commercial property prices are positively correlated; areas with high residential prices also tend to have high commercial prices. However, the pandemic may disrupt this correlation, leading to a potential desynchronization of price cycles between the two markets. The study also highlights the "doughnut effect," where workers are moving further away from urban centers due to increased teleworking, potentially driving up housing prices in suburban areas while reducing them in city centers.
Barriers to Conversion
Despite the potential for converting offices into residential units, the report emphasizes that such conversions are limited and highly regulated in France. The process requires approval from local authorities, and several factors, including historical preservation regulations and new building standards, complicate the conversion efforts. Between 2015 and 2019, only 10,474 office conversions occurred, amounting to 2.1 million square meters, which represented just 0.99% of new housing space. The conversion of residential properties into offices was even less common, indicating a significant disparity in conversion opportunities.
Environmental Implications
The conversion of office spaces into housing is seen as a potential solution for reducing carbon emissions, as repurposing buildings generally generates fewer emissions compared to new constructions. However, the study suggests that without regulatory changes to facilitate these conversions, the impact of teleworking on housing supply may be limited. The researchers argue that while some conversion projects could be financially viable, existing constraints might lead developers to opt for demolitions over conversions, which could ultimately increase carbon footprints.
Future Trends
The report concludes that the future of office-to-housing conversions depends significantly on the long-term effects of teleworking and regulatory frameworks. If teleworking becomes a permanent aspect of work culture, the slowdown in the office market could prompt more conversions. However, the potential for housing and office markets to polarize geographically may also influence this trend, possibly affecting housing prices and availability in urban centers and suburbs alike. This report provides a critical analysis of the ongoing changes in the real estate market, emphasizing the need for adaptive policies to foster sustainable housing solutions in a post-pandemic Europe.