Though U.S. developers added 39 million square feet of new office space nationwide over the past year, the gains were muted because another 22 million square feet of office space was removed from the market, CoStar Group reported.
Where did it go?
Developers have either demolished or converted the removed space into other uses, such as apartments or condos, according to an analysis of CoStar's third-quarter Office Outlook and Forecast.
"Clearly, we see a shift in how real estate is being used and what developers are building," said Walter Page, director of office research for CoStar. "So far, over half of the office recovery has been driven by removals of space. We're still at a very low level of net completions, due mostly to demolitions."
But more developers are second-guessing demolishing these older office buildings and opting to convert these spaces into residences in order to help meet growing demand for urban residential space.
Developers are finding that residential condos can fetch investment sales prices higher than what the office buildings attracted.