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wave of distress is expected in the office sector over the next few years as owners cut their losses and sell run-down, vacant offices in fire sales. This could be good news for housing supply as former offices get converted into apartments. Real estate experts say that many office buildings are facing a wall of maturing debt and struggling against enduring work-from-home trends.

    Richard Barkham, chief global economist at CBRE, predicts an upheaval of Class B office buildings, which have high vacancy rates and struggle to attract tenants due to being older and in need of renovation. These properties could be ripped down or transformed over the next decade, with banks disposing of them through fire sales.

    The number of office spaces scheduled for conversion into apartments has risen significantly, with 55,000 conversions planned in 2024 - a 357% increase from 2021 levels. This trend is expected to continue as landlords face a glut of unwanted space and the demand for offices continues to sag.

    Barkham estimates that around 10% of the total office supply accounts for the worst-performing buildings, which could be spun into residential space. A CBRE analysis suggests that up to 1.38 billion square feet worth of office space could be converted into residential properties over the next decade.

    While conversions are costly and difficult, they can be a viable option for landlords facing financial difficulties. In New York, architects have already begun rearranging square footage in skyscrapers, and Silverstein Properties is spending $1.5 billion to convert some of its office buildings.

    The office market's new era has seen demand for offices sag since the pandemic, with the US office vacancy rate rising to 19.4% in August. Late payments on commercial real estate loans have also climbed to a nearly 10-year high. However, real estate investors have warmed up to the sector over the past six months, thanks partly to buildings being sold at steep discounts.

    Many defunct offices are expected to be converted into residential properties given the shortage of housing in the US. The office-to-residential conversion is the most common type of conversion project, accounting for 38% of all conversions in the works. Cities with many vacant offices could see more stores, restaurants, and theaters creep into the mix as changes take place over time.