The conversion of existing commercial property stock to capitalise on the demand for inner city living opportunities has seen significant inventory of office space crossing over to residential use in our major cities.
In Bayleys’ latest edition of Total Property magazine, the transition from departments to apartments is explored with New Zealand following international trends for significant volumes of redundant commercial building assets being converted for residential purposes.
Bayleys’ national director commercial real estate, John Church says New Zealand developers have been scouting around for CBD sites which offer potential for conversion.
“In the Auckland CBD, where the overall office vacancy rate declined further in the first half of this year to an historic low of 8.8 percent in July reflecting some of the tightest market conditions seen in a number of years, the challenge is on for developers to find suitable buildings to convert to residential accommodation,” says Mr. Church.
“As demand for office accommodation evolves and expectations around quality of commercial space change, CBD landscapes in New Zealand are evolving – as they are world-wide,” says Mr. Church.
“A range of accommodation options including high-yielding student accommodation floors, hotel operator lease-back or purchase scenarios, and high-end unit-titled apartments are soaking up former office space as new commercial office developments come on stream in emerging precincts.”
For commercial property developers looking to convert a building from office to residential, drilling down into what will ultimately drive value and minimise risk is key to a successful project.
In Wellington, high-profile commercial property developer Maurice Clark of McKee Fehl, says that to date, his company has converted 22,000m2 of former office stock to student accommodation in the capital.
Clark-driven projects include the former ANZ building at 175 The Terrace which was redeveloped into a 390-room hall of residence – now called Katharine Jermyn Hall – with a 15-year lease in place to Victoria University. It was recently purchased by Caniwi Capital for $33.3 million.
Meanwhile Wellington Company director, Ian Cassels says his firm has developed 33,000m2 of former office space to accommodation – including 4,500m2 of hotel-type accommodation – and expects to convert a further 10,000m2 per year in the short term.
Mr. Cassels says he looks for 1980s’ buildings that have a good seismic rating – or which can be efficiently brought up to scratch – located in the CBD with good air and light.
“I set about to add real value to this stock - a rise in rateable value is the measure of a city, he says.”
Mr. Cassels is currently embarking on the conversion of 4,500m2 former office space on The Terrace to high end apartment/hotel.
Post office to homes
In Lower Hutt, Jackson Holdings Limited director, Kevin Melville, is converting the former Lower Hutt Post Office – which he bought last year for $700,000 – into apartments.
“We’re fully upgrading the landmark Art Moderne building, protecting the heritage-listed façade and have signed up the contract with Armstrong Downes to create 16 apartments ranging in size from 90m2 to 115m2,” says Mr. Melville.
Although this Lower Hutt project will be individually unit-titled to keep future ownership options open, the apartments will come to the market as rental offerings.
In Auckland, Tawera Group is the market leader in the office to boutique apartment conversion sector.
It has been behind the development of St James apartments in the former YMCA premises opposite the Auckland Art Gallery; Parklane Apartments in Greys Avenue; 132 Vincent Street, former headquarters for infrastructure services company Beca Carter now 62 freehold luxury apartments; the flagship Hopetoun Residences in the former Baycorp building, and Hereford Residences in the former Telecom head office – both on the fringe of Ponsonby.
Tawera Group’s chief executive office David Mahoney says every conversion it has undertaken has been very site specific.
“The buildings have been in aspirational locations and that is what would limit us in the future – finding sites with those underlying locational credentials,” says Mr. Mahoney.
“Luxury apartment living is a great use for a building that has done its bit for commerce in the city.”
Mr. Mahoney says the main benefits of converting an existing building into apartments is that prospective purchasers can actually identify where their future apartment will be and see what outlook it has, and the construction time is significantly shortened.
The Hereford Residences project will see 119 apartments – some with balconies of up to 75m2 – across 18 storeys with views taking in park and city vistas, the Hauraki Gulf and out to Coromandel. Concierge services will be available to residents and resort facilities within the apartment complex will mirror trends that Mahoney says Singapore, Hong Kong and Sydney developments are boasting.
“We felt that the Auckland market was sophisticated enough to demand that level of service and facilities,” says Mr Mahoney.
Mr Mahoney says that by developing vibrant city apartment complexes such as the Hereford, his company is helping bring life to former commercial zones.
“We are creating a new living environment which revitalises the city and gives it a new energy outside of working hours.”
Read the full article Departments to Apartments in Bayleys’ latest Total Property magazine.