Adaptive Re-Use

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Latest research from the Property Council of Australia shows that the national office market vacancy rate has risen to 10.4 per cent, with all state capitals posting an increase apart from Melbourne and Hobart.

 

Darwin, Adelaide, Canberra and Brisbane all have double-digit vacancy rates, whilst Melbourne, Sydney and Perth are hovering around the 9.0% mark.

Analysts are predicting that these rates are likely to rise with weakening economic conditions, modern working trends, and the completion of major developments, such as Barangaroo in Sydney on the horizon.

In stark contrast, the residential sector is showing positive signs, with recent figures showing national sales at their highest since 2009/2010 in Sydney and Melbourne respectively. The latest ‘Housing Outlook’ research from BIS Shrapnel also predicts house price growth across all state capitals by 2016, with high double digit growth predicted for Sydney (19%), Brisbane (16%) and Perth (17%).

Pent-up demand and low interest rates are the driving force behind the recent results and we are finding developers in many states moving quickly to get projects going to take advantage of the forecast growth and the strong demand for prime CBD apartments from Asian investors.

With the macro-economic stars aligning, we are increasingly finding that innovative owners and developers are considering converting their C and D grade office space into residential units as the returns become more attractive.

To Convert or Redevelop?

When considering the adaptive re-use of C&D grade stock (subject to planning or zoning constraints), building owners
and prospective owners have two main options:

1. Demolition and redevelopment of the site
2. Conversion – retaining as much of the existing structure and external fabric as possible.

There are cost, program and cash-flow advantages and disadvantages associated with both options. Whilst financial comparisons will differ on a project by project basis there are six key questions that should always be considered…

 

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