Home News and Features Downtown Office Market Weak, Landlords Say; Conversion to Apartments Possible but Expensive

Downtown Office Market Weak, Landlords Say; Conversion to Apartments Possible but Expensive

Photo by John Lazenby.
Remote working originally sparked by the pandemic remains popular, weakening the demand for private office space in downtown Montpelier, landlords say, and contributing — along with the absence of state workers — to a decline in downtown foot traffic that is adversely affecting merchants, restaurants, and cafes.

“There is obviously less demand for office space,” according to Steve Everett, who owns three buildings on Main Street. “We have vacancies.”

“Two of my office tenants have downsized,” Everett said. “One that had 12 spaces for workers now only needs five to six spaces for hybrid work, plus a conference room big enough to hold everyone if those working from home come in for a group meeting.”

Pat Malone of Malone Properties, which owns several buildings downtown, said “We have found some companies have pulled out due to working at home, though we were able to lease up the space that was empty” in the TD Bank building at the corner of State and Main. He said that TD Bank itself, while still under lease, does not plan to reopen that space.

Malone, who has first-floor retail spaces in his buildings, some unfilled, would like to see state workers return to their offices when they can. “I don’t think they can serve the public as well from home,” he said.

Given the weak office market, Malone said he is likely to create some apartments on the second floor of the former Hugo’s location at 118 Main Street, and is considering whether to do the same in a former law office building at 140 Main Street that he bought just before the flood.

Apartment conversions can be complicated and expensive, however, and would likely not fully replace the foot traffic created by offices. A space that once held 10 workers might only provide enough room for a two-person apartment, and those apartment residents might be less likely to pop out for lunch everyday than office workers.

From Beehive to Barren

The relative lack of activity downtown is in some ways self-perpetuating. Tim Newcomb, a cartoonist and graphic designer, has not been using the office he rents on Main Street in Montpelier much, partly because the social aspect of working in town has changed. “My office building used to be a beehive of activity, and now there is nobody there,” he said. “It is kind of eerie.” 

Newcomb also used to regularly run into people he knew on the street. “I’d go out for my daily afternoon coffee, and it would inevitably turn into a social half hour,” he said.

“Especially on the fresh fish delivery days at Uncommon Market, you’d stand in a line six-deep and talk to legislators, friends, even the governor. Clients would like to meet at LaBrioche over coffee.”

“Losing those two places, not to mention an actual downtown post office, has really diminished my desire to work in town,” he said. These days, he mostly works at home in Worcester, a choice made easier because fiber optic internet service was recently installed on his road.

Most of the 50 workers at the Vermont League of Cities and Towns (VLCT) are also choosing to work at home, which has allowed the organization to sublet about half of its space in the City Center building to the Food Pantry and yet-to-open post office retail space, according to VLCT Executive Director Ted Brady.

“Most of the staff had to work remotely during the pandemic,” Brady said. “The staff were just as productive and engaged working remotely, so we have continued that policy into so-called normal times. Most work can be done from home or in a remote office.”

Brady recognizes the challenges the remote working phenomenon creates for downtowns, but feels the trend is unavoidable. “Businesses and nonprofits and state offices need to look out for their financial needs and the needs of their workers,” he said.

Apartment Conversion Challenges

Remote working does save money for businesses, but the weaker demand for office space challenges downtown landlords. Can converting office space to apartments, which are in high demand, make up for that lost revenue?

Some landlords, like Malone, are looking at that option, and some new apartments are now being constructed in older buildings downtown. In the large building at 8–20 Langdon Street that used to house Onion River Outdoors, owner Lucky Boardman is creating 20 apartments on the second and third floors in spaces that formerly had four dwellings and other uses such as the Contemporary Dance and Fitness Studio, now located at the Vermont College of Fine Arts.

Some first-floor retail spaces are also being converted to residential use, including the former locations of the Uncommon Market and Hippie Chickpea. Those conversions have permits and can move forward, but the city council responded to those projects by amending the city’s zoning with a “nonconforming elevation amendment,” so that future conversions have to meet the same elevation requirements as new structures.

Conversions can be expensive, Main Street landlord Everett pointed out. “A year and a half ago I could buy a sheet of plywood for $38 to $42 per sheet,” he said. “Last week, the cost was $144.” He noted that Downstreet created some small apartments in the existing French Block building a few years ago for $335,000 per unit, a cost that would likely be much higher today.

And for a building that has some occupied office space, converting a portion of the building to an apartment or two does not make sense financially, he said. “You can’t put a sprinkler in a building at a cost of $50,000 to $100,000 in order to rent a single apartment for $1,000 a month,” he said.

Montpelier taxes also weigh on landlords, according to Everett. The annual property taxes on Everett’s home in 1980 were $1,000, he noted, which after inflation would be the equivalent of $3,650 in 2023. But in actuality, the taxes on his house are now $12,000 per year, he said.

“Between [construction material] inflation and what the city is doing for taxes and where they are looking to put their money, affordable housing is a joke, unless it is subsidized by state and federal taxes,” Everett said.

Taxes aside, the city says it has tried to minimize any regulatory barriers to converting commercial space to residential. “Our design review rules cover the outside of the building, but we have historic standards that apply to the inside,” said City Planning Department Director Mike Miller.

“Certainly in the downtown core there are few barriers to converting commercial to residential, with the exception of the newly passed rules on converting non-conforming commercial into non-conforming residential,” said Miller. “We have no parking rules, no density rules.”

Downtown Businesses Hurting

While the downtown residential population may grow over time through office conversion or new construction and help the local economy somewhat, the current lack of office worker foot traffic is an immediate problem for downtown merchants and restaurant owners.

COVID kicked off the work-from-home trend nationwide, then the flood here further reduced any incentive to come to an office downtown. “I am hearing that there is even less foot traffic downtown since the flood,” said Katie Trautz, executive director of Montpelier Alive, who called the foot traffic decline “a huge concern.”

“I am very pleased with the progress downtown since the flood, but in conversations with the businesses all the time, they reiterate that they are in a very fragile place, and without regular visitation to their shops and restaurants, it makes for a very unpredictable future.”