RealEstateNews 6.23.25

Weekly News Roundup

• Office Supply Shrinking
• Millennial Towers Stopped Sinking, Prices Didn’t
• A Home Buyers Market?

Office Supply Shrinking 

America has a glut of office buildings. That longstanding surplus is finally shrinking. The number of property demolitions and the pace of office conversions into residential buildings are accelerating. Developers, meanwhile, have greatly slowed new office construction because of questions about future tenant demand. As a result, the amount of office supply in the U.S. is on pace this year to contract for the first time in a quarter of a century, according to real-estate-services firm CBRE Group. 

Conversions of office space into apartments held an obvious appeal. But the cost of acquiring an office building and addressing structural obstacles made these conversions too expensive to work in most cases. Now, the pace of office conversions is picking up, thanks to the rapidly falling prices of obsolete office buildings, changes to zoning rules that allow for more residential construction, and government incentives that help bring down costs. At the same time, more companies are summoning their employees back to the office after years of tolerating remote work, sparking new demand for workspace.

In New York City, analysts are forecasting about 40 million square feet of offices to be converted into residential and other uses over the next five to 10 years. That is double the forecast two years ago, before tax benefits and other government incentives were enacted. With a growing number of developers taking advantage of these opportunities, the office market nationwide is on track to lose about 23.2 million square feet this year, CBRE said. That is more than three times the amount of office space removed in 2019. Meanwhile, developers are expected to deliver only 12.7 million square feet of new space this year, pressured by high construction costs and mortgage rates. In 2019, developers delivered more than four times that amount of new office space. Source: Wall Street Journal

Millennial Towers Stopped Sinking, Prices Didn’t   

The gleaming, nearly 60-story tower was the tallest residential building in San Francisco when it opened in 2009, boasting high-end amenities and views of the Golden Gate Bridge and the Bay Bridge. Located in San Francisco’s East Cut neighborhood, close to the Financial District, Embarcadero and Yerba Buena Gardens, the property was widely praised for its sleek, modern design, luxurious amenities and hotel-style services. Celebrity purchasers included Joe Montana. When the units at Millennium Tower hit the market in 2009, the building experienced strong initial sales despite the challenging economic climate following the 2008 financial crisis.

Within the first five weeks of sales, the 419-unit tower sold roughly $100 million worth of condos, with prices in some instances recording in excess of $1,500 a foot, high even for San Francisco. Buyers came from all over the world, including a large number from Asia. The building was sold out by 2013. Then reports emerged that the building had sunk more than a foot and was tilting. More than $100 million was spent on an infrastructure project that engineers say has resolved the problem and stabilized the foundation as of 2023. However, values at the building haven’t rebounded.

While the broader San Francisco market suffered as a result of the Covid-19 pandemic, few neighborhoods were as affected as those with a high concentration of condo developments, like the greater SoMa area, Mission Bay and South Beach. The Wall Street Journal analyzed hundreds of public records and transactions, available from real-estate data company PropertyShark, from the past decade for the building, which has more than 400 units. The comprehensive analysis of resales shows that, of the nine sales that had closed at Millennium Tower this year as of late May, sellers netted an average 20.2% loss compared with what they originally paid for their units. In 2024, the 16 recorded sales at the building netted an average 20.5% loss. Source: Wall Street Journal

A Home Buyers Market?

The inventory of homes for sale is finally rising. Buyers aren’t interested. The U.S. housing market had nearly a half million more sellers than buyers in April, the biggest such gap on record in seasonally adjusted data going back to 2013, according to an analysis by real-estate brokerage Redfin. After years of frustration with fast-rising prices and bidding wars, buyers now have the upper hand in many parts of the country. More sellers are cutting prices or offering concessions such as paying for buyers’ closing costs.

Now, supply is rising because some sellers have experienced life events that require them to move, like a job relocation or having a baby. Others are unloading investment properties because their costs are rising, or they are worried that home prices will fall and want to sell before that happens, real-estate agents say. The new listings haven’t been enough to jolt the housing market out of its slumber. Existing-home sales in April fell for the second consecutive month, notching the slowest sales pace for any April since 2009.

Many buyers are still priced out. Home prices are up more than 50% in the last five years and mortgage rates are holding above 6.5%. Buyers are also feeling economic uncertainty, which tends to discourage major purchases like a new home. The mismatch between buyers and sellers is a sign that home prices could decline slightly on a national basis later this year, said Chen Zhao, Redfin’s head of economics research. Active listings are still about 14% below typical prepandemic levels. But they rose in May to the highest level since 2019, according to Realtor.com, which is operated by News Corp, parent of The Wall Street Journal. Source: Wall Street Journal