Commercial real estate can be a source of regular revenue for the businesses that own such properties. Tenants that rent retail facilities, office space or industrial locations often commit to multi-year leases and either pay for maintenance or manage facility repairs on their own behalf.
For years, office spaces were relatively lucrative commercial property holdings. Owners could readily replace tenants whose businesses failed or those who moved on to another space. In some cases, commercial landlords could charge a premium for offices in high-demand neighborhoods. Employers sometimes leveraged the location of their offices as a perk to prospective employees.
That has shifted dramatically over the last few years. Remote work and hybrid work arrangements have become increasingly popular in many different sectors that used to demand in-person job performance. Companies have started limiting their use of office space or foregoing leases entirely. Those who own commercial space that they previously rented to other businesses may want to consider a facility conversion as a way to take a money pit and turn it into a new source of revenue.
Demand for residential properties remains high
While the need for rental office space has slumped in recent years, there is significant ongoing demand for rental residential space and also owner-occupied residential units. Prices in the residential sector have soared in the last few years.
Investors and businesses that currently own office buildings can potentially seek changes to the zoning and make major adjustments to the facilities to convert them into buildings with multiple residential units. Depending on various factors, it may be more profitable to sell the individual units as condos or to lease them as apartments.
Numerous challenges could potentially arise during the conversion process, including setbacks during the zoning process, difficulty with installing the necessary infrastructure for individual residential units and marketing to prospective tenants or owners. Such projects can take years to complete but can potentially turn a commercial building that does not generate revenue into a highly-profitable residential facility.
Investors and business owners seeking to turn lemons into lemonade by converting unprofitable commercial properties into different types of new facilities often need assistance during that complex process. Bringing in the right support can take some of the frustration out of a commercial property conversion.