Why are so many old offices being turned into new homes?

Demand for inner-city living is giving old office blocks a new lease on life – as apartments.

Low interest rates and strong housing markets are fuelling the demand for inner-city apartments.

Melbourne and Sydney are driving the trend, with developers turning to office conversions to meet demand for CBD living.

Outdated offices that aren’t offering great returns as commercial offices can be converted into residential developments that attract much greater returns due to their central CBD locations.

But a limited supply of suitable inner-city building sites means converting an existing building is often a preferred option.

And demand for buildings suitable for residential conversions is so high that investors are also looking to CBD fringes to find suitable buildings.

Colliers International Managing Director, Capital Markets & Investment Services, John Marasco says Sydney has more than 102,000 sqm of current office space earmarked for conversion to residential.

“The limited number of sites available for residential use across capital city CBD markets, combined with softer investor demand for older office stock, has seen domestic and offshore developers snap up secondary grade office assets that have the potential for conversion to residential or hotel use.”

Savills’ Sydney agent Stuart Cox says more than $300 million of offices sold in 2013 were destined to become apartments.

“This demand has not subsided,” he says.

Cox says local and foreign investors are competing for well-located office blocks in Australia’s CBDs.

“Already there are a number of listed development companies from Singapore, China and Hong Kong, as well as high net worth private investors looking to acquire $100million-plus commercial towers,” he says.

Savills Head of Research NSW Simon Hemphill says the office-to-residential trend will potentially shrink the size of Sydney’s CBD office space up to 2.6%.

He says a number of buildings already been withdrawn from the market are earmarked for conversion to residential or hotel in the next three years.