After two years of overhyped return-to-work forecasts, many desks across the country are still vacant. But on some empty floors of office buildings in Midtown Manhattan, unused space has recently taken on a new role: movie set.
The transformation from a real office to a facsimile on the small screen is part of the business strategy of Backlot, a location service for film and television production in New York that offers landlords a way to make money out of their lifeless cubicles.
The boom in content production and demand for real locations has helped the company get off the ground, said Darren Goldberg, managing partner and head of acquisitions for Backlot. “When you shoot scenes for shows like ‘Billions’ or ‘Succession,’ it’s not just about that one room,” he said. “It’s really about the authenticity of the environment.”
The glut of office space left behind by the pandemic-induced transition to remote working is expected to remain a persistent problem in major cities across the country. The service offered by Backlot is just one of many new alternatives being proposed to landlords with empty offices. Some building owners are converting office buildings into apartments and life science labs as a long-term solution, but others are looking for short-term options that are cheaper and easier to manage, such as renovating space for self-storage, gyms, and even schools.
The task is complicated by the rising cost of any type of renovation and the lack of foot traffic in many city centers and office districts, said Brian Strawberry, chief economist at the consulting firm FMI. “Given the situation with rising interest rates, the economic climate and construction costs, it’s a big challenge,” he said. “There’s a lot of risk out there.”
Backlot offers film and TV productions easy access to 22 million square feet of office, restaurant and retail space throughout New York City. By scouting and preparing locations and handling paperwork and negotiations in advance, the company is turning empty space into filming locations to meet the voracious demand for content.
For example, when the revival of the cult comedy “Party Down” needed to film a quick scene in New York this year, Backlot pulled it off. Other Backlot properties have been used in TV shows such as “Harlem,” “The Watcher,” and “Law & Order: Special Victims Unit.”
Backlot’s clients include hospitality and real estate companies such as Hines, RXR and Union Square Hospitality. “Commercial office buildings don’t like to interfere with their high-paying tenants, and they don’t want to be bothered by 150 people coming to shoot a movie or TV show,” said Mr. Goldberg.
A deal to put the entire portfolio of real estate investor SL Green on Backlot has “generated millions of dollars for us in incremental revenue over the past few years,” said Steven M. Durels, an executive vice president at the company, which promotes itself as New York’s largest commercial landlord.
The timing is right for companies, such as Backlot, that offer alternative uses for commercial real estate. Office rents have recovered from the depths of the recession, but they are still down 6.2 percent on average nationally as of 2019, with renewal rates falling significantly, according to a report from JLL, a real estate agency. A record number of leases will expire in 2023, forcing landlords to rethink how they fill their office towers and generate revenue.
The oversupply of office space is 20 to 40 percent, depending on the city, said Tracy Hadden Loh, a fellow at the Brookings Institution who focuses on real estate. “The challenge is that no one has figured out how to reuse those huge, million-square-foot office buildings from the 1980s,” she said.
“We need to take this functionally obsolete product that’s still in a great location and figure out how not to lose that value,” she added.
Landlords believe they can get creative and flip a switch to solve the problem, but it’s not that easy to redesign spaces for new tenants or business concepts, says David Bergeron, an executive vice president of Savills, a real estate service provider.
“I think we need to test some of those things,” he said. “But I would argue that 99 out of 100 of these experiments will fail.”
The most common strategy is to convert office towers into apartments or apartments. Such conversions drove a record 43 percent increase nationwide in 2021, creating 11,090 new apartments, according to research from RentCafe, a division of the real estate software company Yardi Systems.
But residential conversions account for a small fraction of vacant office space. Renovating offices is often prohibitively expensive and hampered by building codes and the difficulty of carving bedrooms out of large floorboards.
That doesn’t stop some start-ups from finding new business models for vacant space. In Seattle and elsewhere, business leaders are experimenting with retail to bring new tenants downtown, and cities are doing the same studying plans to facilitate housing conversions.
Silofit, a Canadian company that turns former office space into private gyms for personal trainers and their clients, recently expanded its concept to Miami. And a handful of education start-ups and charter schools, such as Acton Academy in the Bay Area, have experimented with operating out of renovated commercial space.
Office space in the city center is also of great value to the logistics sector. For example, Neighbour, a peer-to-peer self-storage concept that helps building owners monetize unused space, has experienced significant growth.
The platform has exploded in popularity over the past year, said Joseph Woodbury, Neighbor’s CEO and co-founder. Compared to a year ago, the site now has four times as much commercial space that is actively used for storage.
As landlords look to rent out their vacant floors and parking garages, more landlords are willing to sign up with Neighbor because they no longer believe they will attract enough tenants, causing occupancy rates to continue to fall. “A lot of owners are starting to realize it’s going to be more serious than we ever expected,” said Mr Woodbury.
Another alternative is to change the way office space is set up and leased, a departure from the traditional large space model with a 10-year lease, which has fallen out of favour. Many landlords have turned to preparing spaces for rent, giving potential tenants the option to move in quickly and stay for shorter periods.
Codi, a San Francisco start-up, offers what amounts to a time-share for office renters by linking small businesses to hybrid schedules so they use the same space on alternate days during a typical week. The company, which operates about 50 locations in the Bay Area and New York, has grown 40 percent in the past six months.
Codi has also just launched a service to rent unused commercial space for off-site meetings for companies that have transitioned to remote working.
“The workplace is undergoing a massive shift and companies value convenience, speed and flexibility more than ever,” said Codi’s CEO, Christelle Rohaut. “The traditional office experience doesn’t offer that.”