A friend ran a small accounting firm in a mid-rise office building off the 405 freeway.

He had a corner suite with a view of the freeway, nothing glamorous, but it was solid. For years, he paid his rent on time, kept his staff of five happy and felt secure knowing his office space was a symbol of his firm’s steady success.

Then came the pandemic, and with it, the great work-from-home migration. By 2021, his lease was up, and he made a decision that landlords across Southern California now dread: He let the office go.

Fast forward to today, and that once-bustling office tower is struggling to fill vacancies. My accountant friend, like so many others, now operates remotely, with employees who have no desire to return to a traditional workspace. His old office? A ghost town — one of many scattered across the region.

Office space dilemma

Southern California’s office market is at an inflection point. Vacancy rates in key markets like downtown Los Angeles, Orange County and even the tech-heavy hubs of the Westside are at record highs.

According to industry reports, some buildings now hover around 30%-40% vacancy — numbers that would have been unthinkable before the pandemic.

Many landlords are feeling the squeeze. With high interest rates and declining property values, some are defaulting on loans or handing the keys back to lenders. Others are scrambling to repurpose their spaces, but office-to-residential conversions — while a hot topic — are easier said than done.

Office conversions

California has long been in an affordable housing crisis, and state leaders see underutilized office buildings as a potential solution.

Gov. Gavin Newsom and local municipalities have been pushing zoning changes and incentives to encourage office-to-housing conversions. On paper, it sounds like a perfect match: empty buildings meet an urgent housing need. In reality, it’s a far more complex equation.

Many office towers were never designed for residential use. Deep floor plates, a lack of windows and outdated infrastructure make conversions expensive, and in some cases, structurally impractical.

Developers also face regulatory hurdles, with zoning laws, permitting delays and financing challenges slowing progress.

While some successful conversions have taken place — such as the historic Tribune Tower in Oakland — most landlords are finding it more feasible to hold out for office tenants than take on the massive costs of redevelopment.

So what’s next?

The commercial real estate industry is at a crossroads, and the future of office space will depend on creative solutions.

Some landlords are embracing mixed-use redevelopment, incorporating residential, retail, and entertainment into former office hubs. Others are investing in high-end amenities to attract tenants back — think wellness centers, private clubs and hospitality-driven office experiences.

But the hard truth is that Southern California will have to adapt to a world where remote and hybrid work are permanent fixtures. That means some office properties will never return to their pre-pandemic heyday.

It also means that cities and developers will need to work together to make adaptive reuse more financially and logistically viable.

As for my accountant friend, he doesn’t miss his office much. His firm is thriving, his staff enjoys the flexibility, and he no longer has to sit in rush hour traffic on the 405.

For him, the office space reckoning isn’t a crisis — it’s a new reality. And for commercial real estate, it’s time to figure out what that reality looks like.

Allen C. Buchanan, SIOR, is a principal with Lee & Associates Commercial Real Estate Services in Orange. He can be reached at abuchanan@lee-associates.com or 714.564.7104.