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America’s office market is teetering on the edge of a massive shake-up as rising debt and the permanent shift to remote work leave countless office buildings across the country vacant and struggling.
In response, experts predict a wave of fire sales and conversions that will turn these once-bustling office towers into much-needed residential housing. With vacancy rates as high as 80% in some Class B office buildings — the older, less attractive properties in need of renovations — the clock is ticking for landlords and banks.
“The banks are going to have to dispose of that real estate,” Richard Barkham, chief global economist for CBRE, said in an interview with Business Insider. “I think we’ll see a wave of offices going back to banks … they’ll be firesold and either demolished or converted.”
Already, large financial institutions are shedding these troubled assets from their balance sheets, with the total amount of commercial real estate loans held by banks dropping to $2.9 trillion from a peak of $3 trillion earlier this year.
Some of the hardest-hit properties are expected to be part of the growing trend of office-to-apartment conversions — a transformation that has taken off since the pandemic. In 2024, the number of office spaces being converted into apartments surged to 55,000, a staggering 357% jump from 2021, according to data from Yardi Matrix.
“There’s a solid base of really badly performing offices that’s going to go bust over the course of 2025,” Barkham said. “It’s quite clear that we don’t need as much office space in the United States as we did.”
While high-end properties in prime locations are still attracting tenants, the remote work revolution has left the broader office market in shambles. National office vacancy rates hit 19.4% in August, marking a sharp increase from the previous year, according to CommercialEdge.
As more offices sit empty, the opportunity to repurpose these buildings is gaining steam. John Vavas, a real estate finance attorney with Polsinelli, says the conversion trend is here to stay.
“The idea of people being in the office three days a week versus five days a week was the exception, not the standard. And now it’s the opposite,” Vavas told the outlet. “If you do that across a company… your demand is going to drop.”
“And when it drops as a result of this post-pandemic thought of being back in the office, then I think you have to start to look at, well, I have this space. What are the needs for the community, for the location? And in New York, it just happens to be residential.”
Major cities like Washington DC, New York, and Los Angeles are at the forefront of this new era, with a combined 19,462 office-to-residential conversions in the pipeline.
Yardi Matrix estimates that 1.2 billion square feet of office space could be converted into housing, while a separate analysis from CBRE projects that 1.38 billion square feet of office space could ultimately be transformed over time.
In some cases, architects have had to cut holes in skyscrapers to rearrange interior layouts, but for landlords stuck with empty floors, the effort is worth it.
In New York, Silverstein Properties has already allocated $1.5 billion to convert part of its office portfolio into residential units.
However, these projects are costly and complex, primarily because office buildings and apartment buildings have completely different interior layouts.
“You will see vacant buildings, and you will see see-through offices for some considerable time,” Barkham noted. Still, with the ongoing housing shortage in the US and declining demand for office space, these conversions could provide a lifeline for struggling real estate investors.
Vavas recounted a recent deal where a property was sold at a 20% to 30% discount simply because the owners wanted to “cut their losses.”
As more landlords face a similar fate, the office market is set to evolve, slowly but surely, into something that looks very different from the gleaming office towers that once lined America’s city streets.
For cities where office vacancies are high, this could also mean the rise of new neighborhoods, with more stores, restaurants, and theaters filling in the gaps. It’s a dramatic reshaping of urban real estate, but one that experts believe is inevitable in a post-pandemic world.