There have been calls for half-empty office blocks, especially second- and third-tier assets in the Sydney CBD, to be turned into residential or mixed-use accommodation.
But some experts have warned against any knee-jerk reaction to short-term, Covid-19-influenced dynamics in the property market that could prompt a shortage of office space down the track.
Others lament the lack of vibrancy more residential accommodation would bring to the city once office workers leave for the day.
This is the first in a two-part series that explores the potential for more residential property in the heart of the city.
The NSW Department of Planning, Industry and Environment is poised to finalise the Central Sydney Planning Strategy, which has been four years in the making.
A core consideration of the Central Sydney Planning Strategy was how much future office space the city requires, a corollary of which is how this affects the potential for more residential property in the city.
Property Council’s NSW executive director Jane Fitzgerald said this was something the council was incredibly interested in because many of its largest members were owners and investors in office buildings.
“We want to compete with Singapore, Hong Kong and other locations in the South Pacific to be the city of choice for international corporations setting up in the southern hemisphere,” she said.
Fitzgerald said there were questions about whether Covid-19 is prompting a cyclical or structural change to the Sydney CBD property market.
“If it's a cyclical change, office occupancy rates will bounce back to pre-pandemic levels,” she said.
“If it's a structural change, something has shifted forever.
“Wise heads are saying at this point they think this is cyclical and the market will bounce back.
“So, it's important we don't throw the baby out with the bath water and deprive ourselves of office space in the future.”
A spokesperson for the Department of Planning, Industry and Environment told The Urban Developer that office conversions to residential buildings would need to be considered on a case-by-case basis, subject to assessment against relevant planning controls.
“In some cases, existing office buildings would not meet the standards required for residential buildings—for example, insufficient floor-to-ceiling heights, solar access and natural ventilation,” she said.
Tom Forrest, CEO of lobby group Urban Taskforce, which represents property developers and financiers, argued it was exactly these highly-prescriptive building regulations that hindered the potential to turn some office blocks into residential developments in the Sydney CBD.
“Many CBD office owners want to look to the planning system and council for flexibility so they don't end up with underperforming assets,” he said.
“The council has refused point blank to consider that so far. But they are under pressure from NSW Treasury to have another look at that position so as to enable planning flexibility, which would improve the live, work and play balance we hope for the City of Sydney.”
The Property Council will have a better idea of whether changes happening in the Sydney CBD property market were cyclical or structural when it measures vacancy rates for commercial property in July. This year it is also measuring occupancy data.
“Then, we'll be able to get a really good sense of whether this is like every other economic downturn, when the space businesses need shrinks before normalising as the economy picks up,” Fitzgerald said.
A City of Sydney spokesperson said the economy was recovering from Covid-19 lockdowns, with an office occupancy rate of 59 per cent in April, up from 50 per cent in March.
“Given central Sydney’s harbourside geography, transport connections and attractive public spaces, sites where businesses can grow remain in demand,” they said.
“Planning controls don’t prevent the conversion of older and poorly-designed office buildings to residential dwellings in Sydney’s city centre, and some conversions or replacements will continue.
“However, converting swathes of office spaces into residential dwellings is a short-sighted response to the shock of the impact of Covid-19 and one that closes out opportunities for economic growth.
“We need to think strategically for the long-term.
“Businesses will always need workspaces for collaboration and instant communication.
“We need to position Sydney as a genuine alternative to other business centres.
“International companies will look favourably on our city as a safe and stable base.
“As the economy expands and business activities increase following the pandemic, the demand for office spaces will pick up.”
No matter whether changes in the Sydney CBD property market are structural or cyclical, Fitzgerald said a flexible approach to planning was key.
“There are ways through this that aren't an either or outcome,” he said.
“It doesn't have to be a zero sum equation. It's a very uncertain time.
“We know we all need to move cautiously around these things. But we also know residents love the CBD life.
“So, if the CBD has changed for the long term, then we need to think about other ways to make sure we're activating the spaces because there's nothing worse than a dead city after hours.”
Forrest agreed their needed to be greater flexibility in the way existing buildings can be used.
“There are lots of development applications that are now foundering,” he said.
“The problem is there's no mechanism to convert some of those buildings into mixed use developments that combine commercial and residential use.”
Forrest said for offices to be converted to residential on any scale, the NSW government would have to take the lead and work with the City of Sydney to amend the CBD strategy.
He is also encouraging the council to reconsider some aspects of the strategy.
“They've locked in a strategy which removes bonuses for residential constructions,” Forrest said
“Plus, height limits have increased from about 275m, the height of Sydney Tower, to 307m, but only for commercial office buildings. This discourages residential.”
A Department of Planning spokesperson said that, in regard to the removal of the residential bonus, the continuation of the bonus for developers to include residential in their DAs was being considered as part of the final assessment.
“The City of Sydney has proposed the removal of the bonus, which was originally designed to bring more people into the centre of Sydney, to provide a renewed focus on jobs,” they said.
Moreover, Forrest wants the Department of Planning and the City of Sydney to step back and look at how Covid-19 had changed the way people worked.
“Property owners should have the option to convert some of their asset to residential,” he said.
“People are coming into the city maybe three days a week. This is driving the need for a more flexible approach.
“What was an office could now be an office and a home.”
He said this could also help address other problems such as rapidly rising house prices as a result of under supply and housing affordability.
“We could avoid empty buildings in the Sydney CBD and start to address the question of housing supply,” he said.
“We could even find a way to make some properties available to key workers and for affordable housing.”
Built-to-rent developments could address some of the difficulties around opening up CBD properties for mixed use or residential properties.
The potential for build-to-rent in Sydney will be the focus of the second part of this series.