The Dirt: Getting to work on too much empty office space

The market for office space in and around Detroit is difficult to get a handle on. Even if you don’t work in an office building — and fewer of us do than five years ago — these buildings can shape or even dominate our communities.

We already have more office space than we need in Detroit, and yet more is on the way, some of it with public subsidies . Other office projects around the city are being scrapped altogether or even demolished. We’re focusing in on the “what” and the “why” of these developments, and taking a look at options for alternative uses for these same spaces. The risk isn’t just that these buildings sit underutilized, it’s that their owners will default on their loans .

What’s your office space reuse idea? Let me know at sarah@outliermedia.org .

Not really a new problem

The oversupply of office buildings is talked about as a “post-pandemic” problem, but Wall Street Journal reporter Konrad Putzier helps us see how the glut goes back several decades . The 2022 piece is still timely and worth a read.

Putzier anchors the start of the problem in 1981 when a tax change ushered in by Ronald Reagan gave companies a big write-off for office space. Loans for offices became cheap and helped usher in the savings and loan crisis. The dot-com boom in the 1990s helped boost the office market again, but its bust did the opposite.

Even so, office development continued to be subsidized, loans stayed cheap, and developers kept going for it. Yet in the last couple decades, developers completed fewer conversions of older office buildings for uses like apartments or warehouses, and supply has just kept going up. (Wall Street Journal)

Pivoting is hard

Planning to build new office towers might seem like a bad idea off the bat in an era of hybrid work, but changing direction on construction projects is difficult once they’ve begun.

Almost every change in a construction project costs money . The bigger the development, the more complicated its financing, and the more stakeholders that need to be brought along. This is one reason pivoting away from office space doesn’t happen more often.

Dan Gilbert hasn’t changed the vision for his project on the Hudson’s site , which will include a lot of office space. He did scale back offices in the Monroe Blocks mixed-use development downtown, but most recent plans still call for 400,000 square feet of office space. Now called the Development at Cadillac Square, the site has been put to use for entertainment and rollerskating amid long construction delays.

A developer in New York City is following suit, considering tennis courts instead of a skyscraper . (American Bar Association, BridgeDetroit, Detroit Free Press, Fortune)

To convert or destroy

Developer Mike Shehadi is demolishing an old Ford Motor Co. office building not far from the Southfield Freeway rather than incorporate it into a mixed-use development planned for the Dearborn site. The reason? Expense. The University of Detroit Mercy decided to demolish the Fisher Administration Center last year for the same reason.

In Midtown, a historic office building from the ’60s is being turned into a hotel . The Plaza (also known as the “Hammer and Nail” building) was used as apartments for several years and was vacant for several years before that .

It’s not an old office building, but the conversion of an old Wyndham Garden Hotel in Sterling Heights into affordable apartments feels like something to celebrate.

Developers eyeing dusty office buildings are focused on their wallets, but policy also plays a role: Lawmakers around the country , as well as the federal government , have started programs to make it easier to convert offices into housing. (Freep, Outlier, Detroit News, Crain’s Detroit Business, Marketplace, Associated Press)

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