In this episode of the REconomy Podcast, Chief Economist Mark Fleming, Deputy Chief Economist Odeta Kushi, and Senior Commercial Real Estate Economist Xander Snyder unpack why an uptick in office conversions has had limited impact on the broader office market, and why that may soon change. Office-to-residential conversions remain difficult, costly, and limited in scale, while new office construction has continued to add supply. However, sharply lower office construction starts could mark a shift, making office conversions measurably influential to national office market in the years ahead.

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Listen to the REconomy Podcast™ Episode 135:

“If only I could snap my fingers and do a full office conversion, we’d have more of them. But they’re tough to pull off, and not many of them are happening relative to the total office market. That’s why, nationally, conversions haven’t moved office fundamentals all that much, at least not yet.” — Xander Snyder, Senior Commercial Real Estate Economist, First American

Transcript: 

Odeta Kushi - Hello and welcome to episode 135 of The REconomy Podcast™, where we discuss economic issues that impact real estate, housing, and affordability. I’m Odeta Kushi, deputy chief economist at First American, and here with me are Mark Fleming, chief economist at First American, and Xander Snyder, senior commercial real estate economist. Hi Mark, and welcome back, Xander.

Mark Fleming - Hey Xander. It’s the econo-teers back at it again. Terrible reference, but I’m going to use it anyway. Today, we’re turning back to one of the most frequently asked questions in commercial real estate right now, and that is office conversions and what impact they’re having on the office market more broadly. That’s why you’re here, Xander. Why have conversions received so much attention, and is it warranted?

Xander Snyder - The question of the last several years. Hi Mark, hi Odeta. On some level, the idea of office conversions feels intuitive. If we have too much office space due to lower structural demand as a result of remote work adoption post-pandemic, why not take some of those office buildings out of stock and convert them into something that we don’t have enough of, and that is in higher demand?

Odeta Kushi - Like maybe an apartment where someone could live? I don’t know. Now, the catch is that conversions are far easier in theory than in practice. They require specialized construction expertise and can be quite expensive. In some cases, demolition and rebuilding is actually the cheaper path.

Mark Fleming - Exactly.

Xander Snyder - Exactly. If only I could snap my fingers and do a full office conversion, we’d have more of them. But they’re tough to pull off, and not many of them are happening relative to the total office market. That’s why, nationally, conversions haven’t moved office fundamentals all that much, at least not yet. That said, they are happening more often in the post-pandemic period than they were before. In certain downtown corridors, they can make up a meaningful chunk of local office supply.

Xander Snyder - They’re starting to add up in a way that could matter more over the next couple of years.

Mark Fleming - Every time someone says, “just convert more offices,” I picture the interior of an office straight out of the classic 1987 movie Wall Street. Drop ceilings, beige carpet, fax machines screaming away in the background, someone yelling “buy” into a phone the size of a brick. Then looking around and saying, “Yeah, we’ll just turn this into luxury housing. No big deal.” While waving a magic wand.

Odeta Kushi - It’s funny your mind went to Wall Street, because I was thinking Office Space, but yes, Gordon Gekko would approve of your reference.

Mark Fleming - Yes, I pity the printer though in Office Space. That’s your ‘90s bias definitely showing.

Odeta Kushi - Indeed it is. But Mark, your 1980s Wall Street reference does have a deeper point. When it comes to office conversions, building design matters. Apartments, which make up roughly three-quarters of office conversions, need windows and separate walls, individual plumbing, and emergency egress. All of that gets much harder when you’re dealing with deep office floor plates and a large interior core.

Xander Snyder - Right. That’s why a lot of conversion projects are with older office buildings that don’t have deep floor plates. It’s easier to carve the floor up to fit apartments with their own windows, bathrooms, and exit routes. But today isn’t just about why conversions are hard. We’ve talked about that on prior episodes. It’s more about why conversions haven’t yet substantially moved office fundamentals and why that might be changing.

Mark Fleming - Yes, we do, in fact, digress. Xander, how much office space has actually been converted over the last five years?

Xander Snyder - Across the major markets that are tracked, about 52 million square feet of office space has been converted to other uses over the last five years.

Odeta Kushi - That sounds like quite a lot until you compare it to total office inventory.

Xander Snyder - Total U.S. office inventory at the beginning of 2020 was 7.9 billion square feet. Those conversions equal roughly a 0.7 percent decline in total inventory.

Odeta Kushi - So 0.7 percent is not nothing, but it’s also not a national market reset button.

Mark Fleming - It’s classic economist math. Fifty-some million sounds big, but when you put it in context, 0.7 percent is small. If conversions reduce vacancy pressures by shrinking supply, wouldn’t it also be worthwhile to compare converted space to vacant office space rather than total inventory?

Xander Snyder - Yes, and that comparison really highlights the scale issue. National office vacancy rose from 9.4 percent in the fourth quarter of 2019 to about 14 percent in the fourth quarter of 2025. That 14 percent represents roughly 1.2 billion vacant square feet.

Mark Fleming - 1.2 billion?

Odeta Kushi - Yes, billion with a B, Mark. As in Blink-182, the iconic ‘90s rock band.

Mark Fleming - Okay, I see what you did there. The setup was impressive. I guess the ‘90s weren’t so bad.

Xander Snyder - I might have to stake a claim on a decade and start making references myself.

Mark Fleming - Or you could just pick the best decade. I keep feeling like you two are decade-aly conspiring against me.

Odeta Kushi - Laughs.

Xander Snyder - I’ll just point out the ‘80s were arguably the birth decade of heavy metal. Metallica, Iron Maiden, Pantera, Judas Priest, Ozzy. All classics.

Odeta Kushi - My goodness.

Mark Fleming - I think it’s clear to our listeners that Xander is an ‘80s music fan, just different ‘80s music than me.

Xander Snyder - Exactly.

Odeta Kushi - And a musician himself. But before this turns into a music podcast, let’s get back to commercial real estate.

Xander Snyder - When compared to that 1.2 billion vacant square feet, the 52 million square feet worth of conversions represent only about 4 percent of vacant space. That’s another reason conversions haven’t created national-level tightening in vacancy rates so far.

Odeta Kushi - Another piece that often gets overlooked is that when the pandemic hit, a lot of new office space was already under construction, even as demand softened.

Xander Snyder - Exactly. From the first quarter of 2020 through the second quarter of 2025, the U.S. delivered about 332 million square feet of new office space.

Mark Fleming - That’s a lot of new space for a world still figuring out hybrid work.

Xander Snyder - It is. Over that same period, conversions offset only about 15 percent of those new additions.

Odeta Kushi - So, we added far more office space than we removed.

Xander Snyder - Yes. Netting out conversions, the office market still added roughly 300 million square feet of space.

Mark Fleming - Conversions are real, but small. They’ve been outpaced by new deliveries. That explains the lack of national impact so far. But what happens if we look forward?

Xander Snyder - This is where we may be nearing a turning point. Office starts have fallen dramatically. In the fourth quarter of 2025, starts fell to about 4.4 million square feet, nearly a 25-year low. As of the second quarter of 2025, about 23 million square feet of conversions are underway, with another 58 million announced, but not yet started. That’s about 81 million square feet total, compared to roughly 52 million square feet under construction.

Mark Fleming - So the conversion pipeline is actually larger than the construction pipeline.

Xander Snyder - That’s right, if you include announced conversions. That’s why conversions could matter more over the next couple of years.

Odeta Kushi - What should people watch going forward?

Xander Snyder - First, office starts. If they stay near multi-decade lows, conversions will matter more. Second, follow-through. Announced projects don’t always materialize. Third, watch net supply. That tug-of-war between new deliveries and space being pulled out through conversions is where the impact will show up.

Mark Fleming - It’s much easier to announce a conversion than to complete one. Let’s say conversions underway stay at 23 million square feet.

Odeta Kushi - Meaning announced projects continue moving into the pipeline.

Mark Fleming - Right. At what point do conversions exceed new construction?

Xander Snyder - If office space under construction continues shrinking by about five million square feet per quarter, we’d reach about 22 million square feet under construction by the second quarter of 2027. At that point, conversions underway would exceed new construction.

Odeta Kushi - The takeaway is that conversions are real and rising, but they haven’t reset national office fundamentals yet. They start to matter more if new construction remains low. Xander, thank you for joining us. And thanks to our listeners for tuning in. If you have an economics question you’d like us to cover, email economics@firstam.com. Until next time.

Thank you for listening, and we hope you enjoyed this episode of The REconomy Podcast from First American. We're pleased to offer you even more economic content at firstam.com/economics. This episode is copyright 2025 by First American Financial Corporation. All rights reserved.

This transcript has been edited for clarity.