Melbourne Eyes Incentives in Office Reuse Push

As Melbourne grapples with a housing crisis and the lingering effects of remote work, a plan to transform the city’s old office towers into residential spaces is gaining traction. And Melbourne Lord Mayor Nicholas Reece says property developers, financiers and investors will drive this revitalisation of the CBD while potentially reaping significant returns. To that end, Reece, who pushed for guidelines around such conversions in February, wants incentives for developers to convert old office buildings into residential units. “I hope that by making more apartments available in the city that more people will take up the opportunity to live in the centre of the best city in the world, where all the best of Melbourne is right on your doorstep, restaurants, sports gardens, and art galleries,” Reece told The Urban Developer . “We have in the city about 30 per cent of buildings that are B and C grade office towers. “They were built in the 80s and 90s and as office workers are moving towards premium sustainable office buildings ... there are higher vacancy rates in those office towers.” “What we want to see happen is these office towers are converted to new uses like residential.” The proposal comes at a crucial time. The Melbourne CBD’s at times bustling nightlife and higher traffic weekends contrast sharply with quieter weekdays. The housing statement by International design practice Hassell working with Ethos Urban and the Property Council of Australia has outlined a framework for unlocking adaptive reuse that could deliver up to 4000 new apartments each year, Reece says. Hassell’s Radical Re-Use: From Office to Home report identified 86 office buildings in Melbourne’s CBD that could be converted to residential use. Melbourne CBD offices suitable for conversion ▲ The map shows 86 buildings ripe for conversion. Image: Hassell. Source: CoM Census of Land Use and Employment data 2021 Hassell commercial and workplace sector leader Ingrid Bakker says they looked at buildings built before 1990 and of 10 stories or more. “And we filtered them down to the ones that were 20m to 25m wide. That means you can get an apartment back-to-back with a corridor down the middle and still comply with the better apartment design standards.” Bakker says that “even if half of these were transformed, we could create 10,000 to 12,000 new apartments”. But the benefits extend beyond merely increasing housing stock, according to Bakker: “Each building conversion uses about half the embodied carbon compared to demolishing and rebuilding on the same site.” By reusing existing structures, these projects significantly reduce carbon footprints, aligning with developers’ growing ESG targets and sustainability goals. Conversions could also play a crucial role in urban revitalisation, breathing new life into areas with struggling retail sectors. A speed-to-market advantage is also appealing. Hassell’s research suggests conversion projects could be completed up to 12 months faster than the traditional demolish-and-rebuild. Bakker says office-to-residential conversion is not the only adaptation possible. “We’re really just making sure we’re bringing life to these buildings, reusing the assets,” she says, adding other potential uses include educational facilities, allied health services and even aged care, as demonstrated by Australian Unity’s FK-designed Alba project at South Melbourne. ▲ The Alba project transformed a 1970s office in South Melbourne into an aged care residential facility. Financial viability remains a key concern. Construction costs and labour shortages are a bridge that still needs crossing. To address this, industry leaders are engaged with state and local governments to explore potential incentives. Reece says that if he returns as mayor, he would implement a range of measures to encourage more adaptive reuse, including refunding council fees for office-to-residential conversions creating more than 100 new apartments, reviewing building regulations, and slashing council rates. He would also provide a dedicated planning and building assessment service, establish a working group with the Victorian Government, and apply new planning incentives to allow sensible increases in building heights for adaptive reuse developments on a case-by-case basis. The Urban Developer understands this may also include planning discretion on setbacks and uplift (among other things), tax abatements or land tax relief for a period, or grants and bonuses, and a ‘carbon bonus’ based on the embodied carbon retained in the building. “With the pilot project we are working on, we are trying to demonstrate an example where on a particular site, the government may be prepared to do X, Y and Z, which could then make it a viable project,” Bakker says. “We’re not saying that’s a blanket approach that would apply to every building. There would be discretion around every project. Each site’s going to be different and have different needs. “The government is just keen to understand what potential levers they can push and pull to help make it viable.” Discretionary planning ideas ▲ Hassell’s suggestions for a discretionary planning scheme. Victorian planning minister Sonia Kilkenny is on board with the plan that she says was originally part of the State Government’s Housing Statement. The Urban Developer asked the minister at the Building CRC 4.0 conference in Melbourne this week if she thought the plan was still feasible. “One of the initiatives is to identify a clear pilot for conversion of some commercial buildings in the CBD. And there’s pilot work happening right now looking at exploring that,” Kilkenny said. “But at the end of the day, there’s no one silver bullet to the housing crisis. It’s important to look at all options and there are compelling reasons why we’d want to adapt and reuse existing buildings. “There are financial imperatives and other drivers, but it’s certainly in the mix and we should look at all the options that we can undertake to solve this issue.” The concept of adaptive reuse is not new to Melbourne. In 1993, the former home of the Victorian Cricket Association at 1 Exhibition Street became the first commercial office building in Melbourne to be converted into apartments. This was part of the Postcode 3000 policy, which lifted the CBD population from 400 to 40,000. ▲ The Reece highlights an example of a successful office to residential conversion at 1 Exhibition Street Melbourne. The current proposal aims to replicate this success on a larger scale. However, the path to conversion is not without challenges. Retrofitting office buildings for residential use can be costly and complex. The structural integrity, layout, and existing infrastructure may not suit residential purposes and could require extensive modifications. Potential noise pollution, privacy concerns, and other issues related to commercial activities must be carefully addressed. The Victorian Government has announced a scheme to fast-track planning approvals for high-density housing developments up to 20 storeys high in 10 hubs across metropolitan Melbourne. Potential for financial incentives, faster project completion, and alignment with ESG goals, should hopefully inspire developers to get on board. As the governments work through various incentives to make these projects viable, some developers are already expressing interest. “We’ve already spoken to a couple who are happy to be one of those first five if they’re going to get some kind of bonus,” Bakker says. You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. 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Melbourne Eyes Incentives in Office Reuse Push

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