The conversion of offices: An alternative to the housing shortage

The housing shortage in big cities is increasing.

The conversion of offices: An alternative to the housing shortage

Large cities like Madrid and Barcelona have been experiencing soaring rental and property prices due to high demand and housing shortages in the capital. In March, the capital saw record highs, increasingly restricting access to housing. The lack of available land for new construction is leading developers and individuals to turn to the conversion and comprehensive rehabilitation of properties for other uses. This includes the transformation of offices into residential properties.

The office sector has faced constant vacancy increases since experiencing an unprecedented crisis in 2021, driven by the pandemic and the subsequent rise of remote work. However, amid this crisis, the opportunity to convert these spaces into housing arises. In fact, according to estimates by the consulting firm EY, Madrid has 1.8 million square meters of offices that could be converted into housing by 2043.

In this regard, the Community of Madrid is finalizing a law to promote the transformation of offices into housing. This is the Law of Urban Measures for the Promotion of Protected Housing, with which the Madrid government aims to revitalize the real estate market over the next two years. This regulation contemplates the possibility of changing the use of office tertiary lands to residential, as long as the purpose is to convert them into protected rental housing, promoting affordable rental. The law will apply to both existing buildings and vacant lots. The resulting homes can be rented for a period of no less than 15 years, after which they would become free market housing.

Signs of recovery in the office market during the first quarter

Good news for the office segment, which, after a long period of uncertainty, is also showing signs of recovery in Spain. Between January and March, there was a rebound in office leasing, according to data from the first quarter of the year published by the consulting firm Savills. Madrid recorded 149,000 square meters of leasing between January and March, with 19 transactions of more than 3,000 square meters. This represents an 11.6% increase compared to the same period last year. In Barcelona, the other major Spanish city, leasing rose to 102,700 square meters in the first quarter, a 62% year-over-year increase.

The office market closed one of its best quarters of the last decade (only surpassed in 2019, which was a record year), mainly driven by the return of large transactions in Madrid and Barcelona, according to the latest Office Pulse study by the consulting firm. This trend change, after the challenges posed by the pandemic and the rise of remote work, invites optimism for the rest of the year.

Urbanitae and the housing shortage

The transformation of these assets is a growing model with great potential that has not gone unnoticed by developers who trust Urbanitae. Therefore, the conversion of offices into apartments has also been included in the financing operations launched by the platform for its investors.

The Apartamentos Campanar project in Valencia, financed just a month ago, is a good example. It involves the acquisition of an office floor for its renovation and transformation into 20 tourist accommodation units. It was not the only one; the Doce de Octubre project involved the transformation of a former bank office into four homes. Additionally, the García Lorca project, in collaboration with Grupo Abauco, involved the development of new homes in Seville on the first floor of an office building.

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