From WFH to living in the office: How office conversions could unlock more housing

There’s growing calls to transform empty older office buildings in city centres into apartment buildings to help alleviate Australia’s rental crisis and broader housing challenges. Converting offices into homes isn’t a new idea and has often been dismissed due to high costs, building limitations and regulatory challenges. Yet superannuation fund Australian Unity recently converted its former Melbourne headquarters into a seniors living complex, while the former Bank of China building in the Sydney CBD is set to be transformed into a hotel. The development was part of a larger senior living complex that sat alongside the Grace, a 19-storey retirement village with 79 apartments that was finished in 2019. One of the big issues surrounding office-to-residential conversions is cost, as it was for the Alba project. Chris Harper, General Manager – Development & Fund Services at Australian Unity, said the project made a development profit, with the cost of the conversion being slightly cheaper than a knock down and rebuild. A construction analysis of the Alba project showed that the office-to-accommodation conversion cost about $6,300 per square metre, compared to $6,700 per square metre to knock down and rebuild a similar project. However, the analysis also highlighted that the cost of converting the old office into an A-grade commercial building was much cheaper at $3,400 per square metre. While Australian Unity could have made a greater profit converting the property into a commercial building, Mr Harper said the company valued the environmental, social and community benefits from the project. For the Alba, the project was said to have saved the equivalent of taking 757 cars off the road for a year by converting the property rather than knocking it down and rebuilding. He said the company estimated that the Alba and Grace projects delivered millions of dollars in community and social value every year through better access to healthcare, improved health outcomes, supported living in place and other benefits. The Alba is one of the latest examples of office conversions in Melbourne’s St Kilda Road office precinct. “Around 100,000 square metres of office space has been withdrawn for conversion to residential over the past decade in St Kilda Road’s office precinct, proving that it is possible. Almost all this withdrawn space was secondary grade office,” Ms Flaherty said. “Given the current and projected shortage of housing, anything that can help add to supply should be explored.” “Due to the challenges associated with converting offices into apartments the possibility is often dismissed. But it can be done and it has been done, the key is finding appropriate buildings.” Originally published on Realestate.com.au. These were serious carbon emission savings for the building and construction industry, which accounted for 37% of energy and process-related carbon emissions globally. About 100 billion tonnes of waste was caused by construction, renovation and demolition globally in 2021, with about 35% sent to landfills, according to the World Business Council for Sustainable Development. Construction material use, which already accounts for 9% of overall energy-related CO2 emissions, was predicted to double by 2060. This all comes at a time when governments and businesses are trying to slash their carbon emissions, with Australia aiming for net zero emissions by 2050.

Australian Unity shows the way

As Hassell and the Property Council ramp up the conversion conversation, Australian Unity is showing other office landlords how it can be done. Australian Unity recently unveiled the Alba assisted living and aged care facility, which was its former office headquarters in Albert Park, Melbourne. First built in the 1970s, the 15-storey tower was transformed into 95 residential care suites and 60 comfortable living apartments. The development was part of a larger senior living complex that sat alongside the Grace, a 19-storey retirement village with 79 apartments that was finished in 2019. One of the big issues surrounding office-to-residential conversions is cost, as it was for the Alba project. Chris Harper, General Manager – Development & Fund Services at Australian Unity, said the project made a development profit, with the cost of the conversion being slightly cheaper than a knock down and rebuild. A construction analysis of the Alba project showed that the office-to-accommodation conversion cost about $6,300 per square metre, compared to $6,700 per square metre to knock down and rebuild a similar project. However, the analysis also highlighted that the cost of converting the old office into an A-grade commercial building was much cheaper at $3,400 per square metre. While Australian Unity could have made a greater profit converting the property into a commercial building, Mr Harper said the company valued the environmental, social and community benefits from the project. For the Alba, the project was said to have saved the equivalent of taking 757 cars off the road for a year by converting the property rather than knocking it down and rebuilding. He said the company estimated that the Alba and Grace projects delivered millions of dollars in community and social value every year through better access to healthcare, improved health outcomes, supported living in place and other benefits. The Alba is one of the latest examples of office conversions in Melbourne’s St Kilda Road office precinct. “Around 100,000 square metres of office space has been withdrawn for conversion to residential over the past decade in St Kilda Road’s office precinct, proving that it is possible. Almost all this withdrawn space was secondary grade office,” Ms Flaherty said. “Given the current and projected shortage of housing, anything that can help add to supply should be explored.” “Due to the challenges associated with converting offices into apartments the possibility is often dismissed. But it can be done and it has been done, the key is finding appropriate buildings.” Originally published on Realestate.com.au. Fresh research has identified 86 office buildings in Melbourne’s CBD that could be repurposed into housing, potentially delivering up to 12,000 new homes. Conducted by architecture firm Hassell on behalf of the Property Council of Australia, the research found that these specific office buildings represented just 6% of all office buildings built before 1990. The research team chose the buildings carefully by selecting offices that were built before 1990, were more than 10 storeys high and at least 24 metres wide. These conditions were set to ensure they could create quality apartments within the existing buildings, which were mostly in need of an upgrade. Hassell principal architect Ingrid Bakker, who led the research, said the potential solution to reactivate the city offered a sustainable perspective for the future. “There’s a bit of a radical rethink that needs to happen around looking at these buildings that obviously aren’t performing very well because a lot of them are empty,” Ms Bakker said. Andrew Lowcock, the Deputy Executive Director of the Property Council in Victoria, said there was a lot of sub-prime office space in Melbourne’s CBD that remained under-utilised. The Property Council’s latest office occupancy research showed the vacancy rate for secondary offices in the Melbourne CBD had reached about 17% in July this year. “With the housing crisis putting significant strain on many Victorians, it’s important that government and the private sector examine innovative solutions,” Mr Lowcock said. “Adaptive reuse could, with the right policy settings, create new housing supply in locations where amenity, transport connections and jobs already exist.”

Reducing the carbon footprint

Converting existing buildings also offered significant environmental benefits. Ms Bakker said each converted building used roughly 50% less upfront embodied carbon compared to knocking down an old office and rebuilding a new one from scratch. Embodied carbon is the amount of carbon emitted during the construction of a building, compared to a new building. These were serious carbon emission savings for the building and construction industry, which accounted for 37% of energy and process-related carbon emissions globally. About 100 billion tonnes of waste was caused by construction, renovation and demolition globally in 2021, with about 35% sent to landfills, according to the World Business Council for Sustainable Development. Construction material use, which already accounts for 9% of overall energy-related CO2 emissions, was predicted to double by 2060. This all comes at a time when governments and businesses are trying to slash their carbon emissions, with Australia aiming for net zero emissions by 2050.

Australian Unity shows the way

As Hassell and the Property Council ramp up the conversion conversation, Australian Unity is showing other office landlords how it can be done. Australian Unity recently unveiled the Alba assisted living and aged care facility, which was its former office headquarters in Albert Park, Melbourne. First built in the 1970s, the 15-storey tower was transformed into 95 residential care suites and 60 comfortable living apartments. The development was part of a larger senior living complex that sat alongside the Grace, a 19-storey retirement village with 79 apartments that was finished in 2019. One of the big issues surrounding office-to-residential conversions is cost, as it was for the Alba project. Chris Harper, General Manager – Development & Fund Services at Australian Unity, said the project made a development profit, with the cost of the conversion being slightly cheaper than a knock down and rebuild. A construction analysis of the Alba project showed that the office-to-accommodation conversion cost about $6,300 per square metre, compared to $6,700 per square metre to knock down and rebuild a similar project. However, the analysis also highlighted that the cost of converting the old office into an A-grade commercial building was much cheaper at $3,400 per square metre. While Australian Unity could have made a greater profit converting the property into a commercial building, Mr Harper said the company valued the environmental, social and community benefits from the project. For the Alba, the project was said to have saved the equivalent of taking 757 cars off the road for a year by converting the property rather than knocking it down and rebuilding. He said the company estimated that the Alba and Grace projects delivered millions of dollars in community and social value every year through better access to healthcare, improved health outcomes, supported living in place and other benefits. The Alba is one of the latest examples of office conversions in Melbourne’s St Kilda Road office precinct. “Around 100,000 square metres of office space has been withdrawn for conversion to residential over the past decade in St Kilda Road’s office precinct, proving that it is possible. Almost all this withdrawn space was secondary grade office,” Ms Flaherty said. “Given the current and projected shortage of housing, anything that can help add to supply should be explored.” “Due to the challenges associated with converting offices into apartments the possibility is often dismissed. But it can be done and it has been done, the key is finding appropriate buildings.” Originally published on Realestate.com.au. PropTrack economist Anne Flaherty said despite the challenges, there were several advantages to office conversions. “First, offices tend to be located in areas well serviced by transport networks with high levels of amenity,” she said. “They also tend to be located close to or within key employment hubs. Conversions that take place in CBDs have the added advantage of bringing more people into the cities. “Office occupancy rates have persisted below pre-Covid levels for well over three years now, while vacancy rates have continued to climb.” The Melbourne CBD office vacancy rate rose to 15% in July, up from 12.9% a year earlier, according to data from the Property Council of Australia. The vacancy rate in the Sydney CBD has also increased, up to 11.5% in July from 10.1% at the same time last year. That’s a lot of empty office space that could be put to use as homes, especially <a href="https://www.realestate.com.au/insights/renters-offering-more-than-20-premium-to-secure-homes/" target="_blank" rel="noreferrer noopener">desperately-needed rental housing</a>. Ms Flaherty said increasing the number of residents in CBDs would also restore higher foot traffic that would support retailers and the vibrancy of our cities. <h2 class="wp-block-heading">Melbourne CBD eyes office conversions</h2> As Australia’s two biggest office markets, Melbourne and Sydney offer the biggest opportunities to convert obsolete workplaces into homes at scale. <!-- wp:paragraph --> Fresh research has identified 86 office buildings in Melbourne’s CBD that could be repurposed into housing, potentially delivering up to 12,000 new homes. <iframe loading="lazy" style="border-radius: 12px;" src="https://open.spotify.com/embed/episode/37f4mnQC4zrCABwBO4StAO?utm_source=generator&amp;theme=0" width="100%" height="152" frameborder="0" allowfullscreen="allowfullscreen"></iframe> Conducted by architecture firm Hassell on behalf of the Property Council of Australia, the research found that these specific office buildings represented just 6% of all office buildings built before 1990. The research team chose the buildings carefully by selecting offices that were built before 1990, were more than 10 storeys high and at least 24 metres wide. These conditions were set to ensure they could create quality apartments within the existing buildings, which were mostly in need of an upgrade. Hassell principal architect Ingrid Bakker, who led the research, said the potential solution to reactivate the city offered a sustainable perspective for the future. “There’s a bit of a radical rethink that needs to happen around looking at these buildings that obviously aren’t performing very well because a lot of them are empty,” Ms Bakker said. Andrew Lowcock, the Deputy Executive Director of the Property Council in Victoria, said there was a lot of sub-prime office space in Melbourne’s CBD that remained under-utilised. <div id="attachment_57786" style="width: 1034px" class="wp-caption alignnone"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-57786" class="wp-image-57786 size-large" src="https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/capi_14d4aa0e7de7ea03e401da182acb4fe1_f3a1e8784a05afb9871869404d4b90fb-1024x576.jpeg" alt="FESTIVE SEASON" width="1024" height="576" srcset="https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/capi_14d4aa0e7de7ea03e401da182acb4fe1_f3a1e8784a05afb9871869404d4b90fb.jpeg 1024w, https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/capi_14d4aa0e7de7ea03e401da182acb4fe1_f3a1e8784a05afb9871869404d4b90fb-300x169.jpeg 300w, https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/capi_14d4aa0e7de7ea03e401da182acb4fe1_f3a1e8784a05afb9871869404d4b90fb-768x432.jpeg 768w" sizes="(max-width: 1024px) 100vw, 1024px" /><p id="caption-attachment-57786" class="wp-caption-text">Building more homes in Sydney and Melbourne&#8217;s CBDs would support retailers and improve the vibrancy of those city centres. Picture: NCA NewsWire / David Swift</p></div> <!-- wp:paragraph --> The Property Council’s latest office occupancy research showed the vacancy rate for secondary offices in the Melbourne CBD had reached about 17% in July this year. <!-- /wp:paragraph --> <!-- wp:paragraph --> “With the housing crisis putting significant strain on many Victorians, it’s important that government and the private sector examine innovative solutions,” Mr Lowcock said. <!-- /wp:paragraph --> <!-- wp:paragraph --> “Adaptive reuse could, with the right policy settings, create new housing supply in locations where amenity, transport connections and jobs already exist.” <!-- /wp:paragraph --> <!-- wp:heading --> <h2>Reducing the carbon footprint</h2> <!-- /wp:heading --> <!-- wp:paragraph --> Converting existing buildings also offered significant environmental benefits. <!-- /wp:paragraph --> <!-- wp:paragraph --> Ms Bakker said each converted building used roughly 50% less upfront embodied carbon compared to knocking down an old office and rebuilding a new one from scratch. <!-- /wp:paragraph --> <!-- wp:paragraph --> Embodied carbon is the amount of carbon emitted during the construction of a building, compared to a new building. <!-- /wp:paragraph --> <!-- wp:paragraph --> These were serious carbon emission savings for the building and construction industry, which accounted for 37% of energy and process-related carbon emissions globally. <!-- Start of Brightcove Player --> <div style="display: block; position: relative; min-width: 0px; max-width: 640px;"> <div style="padding-top: 56%; "> <video data-video-id="6249951625001" data-account="4342645250001" data-player="ZHYeZ6fogP" data-usage="cms:WordPress:6.5.5:2.3.1:javascript" data-embed="default" class="video-js" controls style="width: 100%; height: 100%; position: absolute; top: 0; bottom: 0; right: 0; left: 0;"> </video> <script src="https://players.brightcove.net/4342645250001/ZHYeZ6fogP_default/index.min.js"></script> </div> </div> <!-- End of Brightcove Player --> <!-- wp:paragraph --> About 100 billion tonnes of waste was caused by construction, renovation and demolition globally in 2021, with about 35% sent to landfills, according to the World Business Council for Sustainable Development. <!-- /wp:paragraph --> <!-- wp:paragraph --> Construction material use, which already accounts for 9% of overall energy-related CO2 emissions, was predicted to double by 2060. <!-- /wp:paragraph --> <!-- wp:paragraph --> This all comes at a time when governments and businesses are trying to slash their carbon emissions, with Australia aiming for net zero emissions by 2050. <h2>Australian Unity shows the way</h2> <!-- /wp:heading --> <!-- wp:paragraph --> As Hassell and the Property Council ramp up the conversion conversation, Australian Unity is showing other office landlords how it can be done. <!-- /wp:paragraph --> <!-- wp:paragraph --> Australian Unity recently unveiled the Alba assisted living and aged care facility, which was its former office headquarters in Albert Park, Melbourne. <!-- /wp:paragraph --> <!-- wp:paragraph --> First built in the 1970s, the 15-storey tower was transformed into 95 residential care suites and 60 comfortable living apartments. <!-- /wp:paragraph --> <!-- wp:paragraph --> The development was part of a larger senior living complex that sat alongside the Grace, a 19-storey retirement village with 79 apartments that was finished in 2019. One of the big issues surrounding office-to-residential conversions is cost, as it was for the Alba project. Chris Harper, General Manager &#8211; Development &amp; Fund Services at Australian Unity, said the project made a development profit, with the cost of the conversion being slightly cheaper than a knock down and rebuild. A construction analysis of the Alba project showed that the office-to-accommodation conversion cost about $6,300 per square metre, compared to $6,700 per square metre to knock down and rebuild a similar project. <div id="attachment_58119" style="width: 1034px" class="wp-caption alignnone"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-58119" class="size-large wp-image-58119" src="https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/The-Alba-has-been-transformed-into-a-vertical-senior-living-village.-Picture-Australian-Unity-1024x683.jpg" alt="" width="1024" height="683" srcset="https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/The-Alba-has-been-transformed-into-a-vertical-senior-living-village.-Picture-Australian-Unity-1024x683.jpg 1024w, https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/The-Alba-has-been-transformed-into-a-vertical-senior-living-village.-Picture-Australian-Unity-300x200.jpg 300w, https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/The-Alba-has-been-transformed-into-a-vertical-senior-living-village.-Picture-Australian-Unity-768x512.jpg 768w, https://www.realcommercial.com.au/news/wp-content/uploads/2023/08/The-Alba-has-been-transformed-into-a-vertical-senior-living-village.-Picture-Australian-Unity-180x120.jpg 180w" sizes="(max-width: 1024px) 100vw, 1024px" /><p id="caption-attachment-58119" class="wp-caption-text">The Alba has been transformed into a vertical retirement village. Picture: Australian Unity</p></div> However, the analysis also highlighted that the cost of converting the old office into an A-grade commercial building was much cheaper at $3,400 per square metre. While Australian Unity could have made a greater profit converting the property into a commercial building, Mr Harper said the company valued the environmental, social and community benefits from the project. For the Alba, the project was said to have saved the equivalent of taking 757 cars off the road for a year by converting the property rather than knocking it down and rebuilding. He said the company estimated that the Alba and Grace projects delivered millions of dollars in community and social value every year through better access to healthcare, improved health outcomes, supported living in place and other benefits. The Alba is one of the latest examples of office conversions in Melbourne’s St Kilda Road office precinct. “Around 100,000 square metres of office space has been withdrawn for conversion to residential over the past decade in St Kilda Road’s office precinct, proving that it is possible. Almost all this withdrawn space was secondary grade office,” Ms Flaherty said. “Given the current and projected shortage of housing, anything that can help add to supply should be explored.” “Due to the challenges associated with converting offices into apartments the possibility is often dismissed. But it can be done and it has been done, the key is finding appropriate buildings.” Originally published on <a href="https://www.realestate.com.au/news/from-wfh-to-living-in-the-office-how-office-conversions-could-unlock-more-housing/" target="_blank" rel="noopener">Realestate.com.au</a>.