Adaptive reuse is the poster child emerging from two major forces reshaping the development landscape of Australia’s cities—shrinking demand for office space and a chronic shortage of housing.
Overall CBD office vacancy hit 12.8 per cent nationally in the six months to July and by mid-2025 it is predicted to rise to 17 per cent.
In particular, the future for older, lower grade office stock is looking dire.
With a flight to quality, cap rates falling and a new source of value—embodied carbon—gathering momentum, the conversation is increasingly focused on asset conversions.
Meanwhile, research indicates the country is facing a potential shortfall of more than 250,000 homes within five years.
According to quantity surveyor and Altus GroupAsia Pacific president for cost and project management Niall McSweeney, it has raised a logical question.
Can the disconnect between the oversupply of offices and the undersupply of homes be solved with adaptive reuse?
The answer, he says, is … well, yes, it certainly would help, but it’s complicated.
“Logically, the thought is, we’ll change the actual asset class of those poorly performing or vacant B and C grade office buildings and move them to residential or build-to-rent.
“Because at the moment that’s where the shortage is. We’re not building anywhere near the volume [of homes we need] … and we’ve got these nice big buildings sitting there that, naturally, people think they can do something with.
“Also, if you look at the cap rates on commercial assets they’re falling and the realisation on residential is rising, so it’s a bit of a why wouldn’t you rather than a why should you?”
Adaptive reuse, McSweeney says, is “a good thing” and, importantly, it can be financially feasible depending on the market, building type and use.
“We’ve done quite a lot of these in the past, particularly in and around Sydney’s foreshore where if you took the building down you'd never be allowed to build back to the same height and bulk that was actually there before.
“Therefore, you leave it there and work around that building envelope and achieve a best fit solution.
“But converting an old office building is often easier said than done,” he warns.
The “structural gymnastics” that may be needed to undertake a conversion—particularly from office to straight residential—can be complex as well as costly.
“There’s no one-size-fits-all approach,” McSweeney says.
“Contemporary expectations around ceiling heights and large floor plates, for instance, can make it hard for the numbers to stack up.”
As well, there are issues relating to column grids, service risers, window systems, HVAC [heating, ventilation, and air conditioning] and sewer outfall that need to be considered.
Not to mention carparking requirements—many city office buildings do not have the basement space to provide sufficient parking for residents' vehicles.
The good thing, McSweeney says, is a lot of the older, lower quality assets ripe for adaptive reuse are in good locations in the middle of major cities.
“That’s where we’ll see the opportunities pop up.
“And if you’re genuinely working within the existing building envelopes it should have an easier route through planning.”
But he says while the process may be slightly quicker, the savings are not substantial compared to a total rebuild.
“People have this impression that ‘I'm going to save a fortune because, hey, my structure is all there’.
“However, the changes and the gymnastics you’re going to have to do with the structure to convert it are actually quite slow. And it will save you a bit but it’s not going to be a massive saving … it's actually not far off what it would cost to rebuild it.
“Generally, though, it is quicker and, therefore, your realisation is better and your feasibility is better.”
In the US—where it is estimated there will be a surplus of 31 million square metres of office space by the end of the decade—an analysis by architecture giant Gensler of 300-plus offices found that 30 per cent were suitable for residential conversion.
McSweeney says he thinks in Australia it will be “a bit less”.
“Because the desire is around meeting the design standards and a high level of minimum criteria … the quality of construction and the methodology of construction here compared to what happens in the US, or even in Europe, is quite different. Some things are better, some things are worse.
“Overall, it really comes down to how much is the final product going to be compromised and what you have to do to the existing structure to actually make it convertible.
“The livability of the final product will have a big impact on feasibility. Office buildings typically have large and open floor plates but people don’t like living in long, thin apartments with limited access to fresh air and natural light. They don’t like windowless bedrooms either, and this is what office conversions can sometimes serve up.”
But he adds: “The truth of the matter is there are going to be some real gems out there, the Goldilocks ones where everything is just right and it’s an easy lift … but it’s not going to work on every building, some of them will be just too hard.
“And that’s where you’re going to have to start looking at some of the other asset classes, and see how you can actually get something else to fit in.”
Some of those other options include conversions for hotel, student accommodation and educational uses.
Although in some cases he says ultimately it is still “quicker and cheaper to knock it down and start again” a more solid business case for repurposing rather than razing older office stock is emerging.
“Most developers and the market as a whole are very carbon conscious and there’s a lot of embodied carbon in concrete and steel,” McSweeney says.
Up to 80 per cent of a building’s total carbon footprint comes from the materials used during construction.
“As we address embodied carbon in construction, regulation and standards will evolve and carbon content will influence asset valuations,” Niall says.
“And building owners will become far more focused on solutions that optimise existing buildings.”
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