Office conversion plans may not be easy

Since the ending of lockdowns caused by the Covid-19 pandemic in 2020-22, many employees have been returning to the office. But numbers have not recovered to pre-pandemic levels. Home working has become normalised, and while larger companies are retaining their central offices, it is often with significantly reduced floor space as they move to ‘hub-and-spoke’ arrangements, in which the main office space is used primarily for meetings and lunches, and there is sharing of desks.
The global bank HSBC is retaining a headquarters in London, but plans to reduce its office space there by around half, and its global office space by 40%. There is a similar pattern in many economies. In addition to a glut of office space in city centres, there may be unused office and retail space in shopping malls as more purchases switch to online outlets. Rises in interest rates since 2022 have affected some highly leveraged real estate developers, potentially causing more unused space to come onto the market.
In Qatar, there has been an over-supply of different types of property in the build-up to the World Cup in 2022, when many developers had the same plans sold to them by different consultants, each based on projected demand for during and after the World Cup. There was no co-ordination, resulting in an over-supply. As there is not enough demand, price reductions will not be enough of a correction.
There is a case to be made for better data on supply and demand in property – this would not be a move towards a planned economy, just a case of better market intelligence to prevent over- or under-supply. The high level of construction activity led to rises in prices for raw materials, leading to some over-runs on costs.
Unused properties open up the possibilities of new uses, in particular for converting office blocks to apartments. There are multiple benefits in moving towards mixed use, in which business districts become, at least in part, a neighbourhood. Some firms such as restaurants are likely to have more weekend trade, and the presence of residents creates a more homely atmosphere. People living in a city centre, especially families, will expect more parks and children’s playgrounds, so the cities are likely to become greener and healthier, in turn attracting more residents.
Converting a specialist office block to residential use can be complicated and expensive, however. Often, a purpose-built office has very large floor space, meaning that, in order to have an efficient division of space into apartments, some would lack windows and natural light. Often the water supply and plumbing is inadequate, given the significant additional number of bathrooms and kitchens. It may even be more economic to knock a building down and construct something from scratch.
Some developers in lower Manhattan in New York have successfully converted office space to apartments, but this is a place where location is everything. Such expensive refits may be less commercially attractive in other cities.
A smart approach for many locations may be to have a blend of uses within a building – mixing residential units and offices, perhaps including a gym and a swimming pool. Such a hybrid arrangement is common in Hong Kong and Singapore, and can be popular with employers and residents alike. There is much scope for imaginative repurposing, both of existing businesses and existing spaces.
The future of work is hybrid, divided between office and home. The future of the city centre is also likely to be hybrid: A blend of office, residential units, retail, entertainment and hospitality. The current mix of property types in many cities, including in the Gulf, does not yet meet this need, but the investment and business models required for conversion may not be the low-risk option they appear, given the cost and complexity of conversion. Nonetheless there could be rewards for investors with deep pockets and a highly imaginative approach.

* The author is a Qatari banker, with many years of experience in the banking sector in senior positions.