Cushman Warns Cities: Convert Offices Or Face Growing Crisis

Cities across America face an intensifying financial reckoning, with mounting evidence showing that the status quo in downtown real estate is unsustainable.

As pandemic aftershocks linger, city budgets are buckling under falling property values prompted by mostly vacant, obsolete office buildings.

Experts warn that if municipal leaders, investors, and developers fail to act, the consequences will be far-reaching: shrinking tax revenues, depressed retail sales, and hollowed-out urban cores that threaten to undermine economic growth and civic well-being.

In other words, a doom loop.

Cities and states throughout the country are taking steps to ease the path for converting office buildings to other uses, particularly to increase housing supply. New York, Washington, D.C., Chicago, Dallas, and numerous others have implemented zoning changes and begun offering financial incentives.

However, these efforts may not be bold enough.

A newly released study from commercial real estate firm Cushman & Wakefield notes that, while office-to-residential conversions are happening at a record pace and dominating downtown redevelopment, only 2.8%–3.5% of office buildings are being converted or repositioned in 2023–2025. The report warned that the current pace is far too slow to achieve a healthy portfolio balance.

Cushman’s study adds fuel to the urgent debate, diagnosing a root cause while offering a prescription. Decades of overreliance on office space have left downtowns vulnerable to today's market shifts, exposing cities to swelling deficits and diminished vitality.

This is a call to action for real estate owners, civic leaders, and investors,” said David Smith, Cushman’s Head of Americas Insights, in releasing the study. “The data shows that smart, targeted redevelopment in our Downtowns can create real financial returns and strengthen the overall vitality of cities.”

The research finds hope, however, in a proven pathway forward: aggressively converting obsolete, lower-quality office stock into housing, retail, and entertainment venues. The message is clear—diversifying downtown building uses isn’t just good real estate practice, it’s critical for urban survival.

Delay, the study cautioned, could transform today’s “slow burn” fiscal challenges into tomorrow’s full-blown crises. To avert this, cities must prioritize targeted public incentives, reformed zoning policies, and investments in parks, transit, and public safety—measures that will draw residents and visitors back downtown while accelerating the conversion of languishing office spaces.

The cost of converting office buildings, though, remains a significant hurdle. A recent Brookings Institution study on office-to-housing conversion analyzed 18 buildings across six cities and found that most conversions are financially unviable without public policy intervention.

Jon Meyers, one of the authors of the Brookings study and a partner at consulting firm HR&A, tells The Builder’s Daily that one key is being proactive with an office building before it becomes completely vacant and the process grows more painful.

One of the real benefits of proactive policy tools, whether it's as of right or more tax incentives and other things, is that they can change the curve of how painful that pain has to be,” Meyers says.

Ultimately, the stakes are starkly drawn. Cities that move decisively to rebalance and revitalize their urban real estate portfolios will chart a new course for prosperity and resilience. Those that hesitate risk fading into fiscal and social decline as tax revenues erode and downtown vibrancy disappears.

Key Findings in Cushman’s Research

Downtowns are Overweighted in Offices:
Downtown “Walkable Urban Places” (WalkUPs), the economic engines of cities, average 70% of their real estate dedicated to office space. Some, like San Francisco, are as high as 87%. This heavy reliance on office products became an acute problem post-pandemic, with vacancies surging to 26.3% in these districts.

The Optimal Urban Mix:
The study proposes an “optimal portfolio” for urban real estate: 42% “Work” (office/owner-occupied), 32% “Live” (housing), and 26% “Play” (retail, hotels, entertainment). Most downtowns are far from this mix, contributing to value erosion. By adjusting to this balance, they could unlock over $120 billion in U.S. commercial real estate value.

Economic Stakes Are High:
WalkUPs span just 3% of a typical city’s land but punch above their weight, producing 25% of real estate value, 37% of property tax revenue, and a staggering 57% of GDP. If these districts falter, the fiscal consequences ripple citywide, threatening essential services and overall vitality.

Tax Revenue and Budget Pressures:
Gradual declines in office values—and rising property tax appeals—are producing mounting revenue shortfalls. Cities like Boston, New York, Chicago, and San Francisco face deficits ranging from the hundreds of millions to over $10 billion in coming years, prompting tax hikes and budget tightening.