In a gentrifying city where residential rents and home sale prices have risen dramatically, several D.C. Council members want their colleagues to consider a novel approach to dealing with a stubborn byproduct of the prosperity.
The problem is the District’s ever-worsening shortage of affordable housing for low-income families. And part of the solution, some council members say, might lie in Washington’s sluggish commercial real estate market.
The city has a growing surplus of empty office space, including more than 14 million square feet of unused commercial property downtown, about double the vacancy rate of a decade ago. Now, officials are wondering if there is a financially viable way to turn some of that idle space into rent-subsidized apartments.
Commercial real estate experts say it can’t be done. Or at least they seriously doubt it. But Council member Robert C. White Jr. (D-At Large) is brimming with optimism.
“The owners of these buildings are really at a loss for new tenants,” said White, who has proposed forming a task force to study the possibility of redeveloping swaths of empty office space — including in steel-and-glass canyons downtown — into low-cost apartments for struggling renters whose housing options are severely limited.
The idea, unrefined so far, indicates how creative, or desperate, the city has become in trying to provide more housing for its poor. Eight other council members have added their signatures to a bill recently filed by White that would establish such a study group.
“There is ample opportunity for the government to extend a hand to these owners and tell them that we want to partner with you and help convert your property to productive use,” White said in an interview. “I think they’d jump at the chance.”
The Apartment and Office Building Association of Metropolitan Washington, which represents building owners, said it supports a task force study. But the association seemed less confident than White about whether a wholesale conversion of high-priced commercial property into inexpensive housing would be economically feasible, pointing out that a significant investment of public money would be required.
Which means it might also be politically untenable.
The effort would involve “the use of local tax abatements, financing incentives” and other sizable government contributions, said Kirsten Williams, the organization’s vice president for governmental affairs. Although a few big cities elsewhere in the country have tried to create more affordable housing by repurposing vacant office space, she said, those projects, to her knowledge, have been small-scale and experimental.
“The District would definitely be a leader if it did this in a big way,” Williams said in an interview. Later, in a statement, she cautioned, “It is imperative that the task force review all of the legal, regulatory and zoning challenges that must be addressed.”
It would be up to the task force to figure out whether a public-private partnership could be formed. The study group would include a low-income renter, an office building owner, representatives of a philanthropic organization and a nonprofit development corporation, various city officials, a structural engineer and several people involved in providing and advocating for the creation of affordable housing.
As for vacant office space, real estate experts say there is plenty of it available.
While gentrification has transformed the District’s residential landscape since the start of the 21st century, driving up housing prices, the city’s commercial real estate sector has fallen into a funk in the past decade, adversely impacted by the post-2008 recession and by major changes in workplace culture and office technology.
Only Chicago’s business district and Manhattan have more square footage of unused office space than downtown Washington’s 14.4 million, according to the most recent quarterly report by Jones Lang LaSalle, or JLL, a giant commercial real estate brokerage.
Those two cities, each much larger than Washington, have far more total office space, meaning their vacancy rates are lower than the District’s 12.5 percent.
“That figure is essentially twice what it was 10 years ago,” said John Sikaitis, a D.C.-based managing director of JLL, referring to Washington’s vacancy rate.
Along with staff reductions in a leaner economy, “the most profound disruption to the market has been technological innovation,” said Scott Homa, JLL’s director of office research. “Just the amount of telecommuting that we’re seeing now. And the fact that files have been digitized. Law firms don’t need big libraries anymore, for instance. There’s more workplace mobility, people being able to share desks.”
And since the mid-aughts, with millennials entering the workforce in huge numbers, “the office dynamic has really changed,” Homa said. “Whereas an older, established workforce would value the privacy of closed walls, you have a mentality with the newer generation that’s built on the sharing economy. There’s less interest in physical separation.”
He and Sikaitis said that one of the problems with converting empty office space into affordable housing in the District is that the kinds of buildings that would lend themselves to such a project are also the types with the lowest vacancy rates — buildings classified by developers and brokers as Class B and Class C, meaning they were mostly constructed before the 1980s and offer fairly low-cost leases.
These buildings, largely occupied by small businesses and nonprofit groups, have an overall vacancy rate of less than 10 percent. The relatively low value of the buildings might make them financially suitable for conversion, Sikaitis said. But the owners would have little incentive to cooperate in such a plan because they already have “sticky” tenants who like the affordability of the space.
The highest-priced office buildings for tenants, the city’s new and gleaming Trophy Class buildings, also have a low vacancy rate. And even if they didn’t, Sikaitis said, turning such a building into subsidized housing would not be financially feasible.
The types of buildings called Class A, constructed in the 1980s and ’90s, have the highest vacancy rate, about 15 percent overall. These buildings also make up the biggest share of the city’s commercial real estate market, about 35 percent, the JLL executives said.
Class A buildings are typically sprawling structures, occupying entire city blocks, and were constructed before the dawn of high-speed Internet and the trend toward open, collaborative work environments, Homa and Sikaitis said. They were designed for companies with hallways and private offices, hundreds of filing cabinets, scores of clunky machines and other space-taking relics of the pre-digital age.
This type of building is probably the kind that would be targeted by an effort to turn vacant office space into low-cost housing, the two executives said.
“But the math just doesn’t work,” Sikaitis said.
“At any part of the core of downtown, you’re talking about values at the level of at least $200 per square foot, and in excess of $450 per square foot depending on the location,” he said. “My guess is the city would probably not be willing to do that when you can create affordable housing in other parts of the city for $50 or $100 per square foot. Or, let’s be honest about it, $15 or $20 per square foot in some areas of the city.”
Council member White, though, is undeterred.
Now 35, White grew up in the 4400 block of 15th Street NW, just above Columbia Heights, in a rowhouse that his grandfather bought for $14,000 in the 1960s.
“Our block was mostly dilapidated houses when I was a kid,” he recalled. “By the time I was in high school and college,” in the late 1990s and early 2000s, “before I’d seen other neighborhoods gentrifying, the houses on our block were very quickly being renovated by new owners. So this block that, for me, looked run-down when I was young, all of a sudden it started looking like something I could never afford.”
He said his grandfather’s old house is worth about $1 million today. And he imagines how that sort of change, all over the District, impacts poor people.
“We as a city do a lot to try to address the problem of affordable housing,” White said. “But the tools we have at our disposal clearly fall short of our needs. So I think we really have to think hard and find new ways to deal with this issue.”