Former office towers are taking on a new lease of life as residential apartments and student accommodation facilities in New Zealand’s main cities. Total Property editor Jody Robb talks to some of those who are transforming departments into apartments.


The conversion of existing commercial office property stock to capitalise on the demand for inner city living opportunities is seeing significant inventory of office space crossing over to residential use in our major cities.

Following international trends which have seen significant volumes of redundant building assets recycled while retaining much of the existing infrastructure and remodelling interiors for residential purposes, New Zealand developers have been scouting around for CBD sites which offer potential for conversion.

As demand for office accommodation evolves and expectations around the quality of commercial spaces change, CBD landscapes are evolving worldwide with Sydney an example of a city in the midst of an inner-city residential development boom.

City of Sydney chief planner Graham Jahn said in February that to date, around 101,000m2 of existing commercial office space had been converted to residential in the inner city, and that a further 220,000m2 is under review or in the pipeline. 

Jahn said the rise in city dwellings would need to be met by growth in jobs and services but added that more residents meant more vibrancy for the city centre.

Apartment conversions are also on the rise in London, Dubai and New York on the back of reduced demand for office space. 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.

Bayleys Research data shows that conservatively, at least 16,618m2 of the Auckland CBD’s net lettable office space has been converted to apartment use since 2007. This only takes into account the CBD core and does not include  fringe areas. 

Within this are a range of accommodation options including high-yielding student accommodation floors, hotel operator lease-back or purchase scenarios, and high-end unit-titled apartments.

A developer is faced with multiple options when looking to repurpose an existing commercial building and the ‘convert’ or ‘redevelop’ question looms large. The cost, time, value and risk analysis requires robust consideration.

For some, it will come down to what is the cheapest and quickest option. For others, it will require real drilling down into what will ultimately drive value and minimise risk.

Generous floor-to-ceiling heights in existing office towers allow good daylight penetration, however, deep horizontal floor plates which may work well in an office context, can present a challenge to developers who need to optimise natural light for apartment use. These over-sized floor plates may require the central core area of the building to be extended or even for new atria to be cut through the building to add extra light – a costly undertaking. 

In many situations, the structural foundations and building frames of a commercial tower will have some spare loading capacity which could allow additional floors to be added on top of the building to increase the net saleable area of the property. These aspirational penthouse spaces have the best views and offer bespoke design opportunities given the creation of a new footprint.  

Capital growth


In Wellington, property developer Globe Holdings is currently working on Appartamento Il Casino – a new 31-apartment development which will incorporate the existing façade of the landmark heritage building formerly home to long-running restaurant, Il Casino.

Globe Holdings was at the forefront of office to apartment living conversions in the capital. Its projects include:

  • Croxley Mills Apartments – a conversion of an historic building to apartments in 2002
  • The conversion of 3,000m2 of vacant office space in Victoria Street into 25 shell apartments (where purchasers completed their own fit-outs)
  • Courtenay Place Depot where a 1900s brick and timber warehouse was converted into 19 apartment units
  • Hume House – a complete strip and retrofit of a seven-storeyed 1960s office building opposite the James Cook Hotel on the Terrace
  • The Tea Store development in Egmont Street where an old warehouse was divided up in to unit-titled ‘shells’, ranging from 80m2 to 220m2, plus basement parking.

Equally proactive in more recent years is Wellington commercial property developer Maurice Clark of McKee Fehl, who says that to date, his company has converted 22,000m2 of former office stock to student accommodation in the capital. Victoria University students have benefitted from his visionary approach with durable, fresh and stylish accommodation options becoming available in what was a tight student accommodation market.

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. 

Caniwi had earlier purchased another Clark-developed hall of residence, 14-storey Boulcott Hall – also leased to Victoria University with accommodation for 180 students. That former office tower property had been home to Internal Affairs prior to a major refurbishment.

German investor Farhad Vladi purchased a previous university hostel project completed by Clark – the former Ranstad House office block on the Terrace which was converted to Joan Stevens Hall of Residence which opened in 2011.

Clark says the student accommodation sector is his focus when converting former office stock.  In sizing up an existing commercial property for potential conversion, “windows and natural light” are his prime concern with the main challenge being time, according to Clark. This man of few words says “we’re always in a hurry”.

Wellington Company director Ian Cassels says the firm has developed 33,000m2 of former office space to accommodation – including 4,500m2 of hotel-type accommodation. He says the Wellington Company expects to convert a further 10,000m2 per year in the short term.

One of the company’s most significant developments was the conversion of the former Hannahs’ shoe factory in Leeds Street, Wellington, into an apartment block. He’s also been behind the conversion of Crombie Lockwood House – the 

Conservation Department’s former Boulcott Street head office – into Quantum Apartments, and he turned the former Inland Revenue 1980s office block in Manner Street known as Blackmore House into residential accommodation with a mix of hostel and apartment living.

Cassels says when contemplating a building suitable for accommodation conversion, 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.

A strong believer in inner city regeneration, Cassels is widely quoted as saying it is better to convert empty office buildings into accommodation offerings than to leave floor upon floor unoccupied. He cannot abide vacant office buildings.

“Empty buildings are plain terrible and precisely what the city cannot have,” says Cassels.

“I set about to add real value to this stock – a rise in rateable value is the measure of a city.”  The major challenges for conversion arise around seismic issues and price according to Cassels who says buying at the right dollar value will largely determine the success of a project.

“Seismic is the key issue although it is vastly overrated,” says Cassels. “Wellington is head and shoulders above any other location in New Zealand for riding out an earthquake yet it is not the most likely place where the next one will hit, in my opinion.

“Then there are challenges around the ‘change of use’ implications for a residential conversion – for example,  fire precautions.” Cassels says his company tends to retain ownership of their accommodation projects, although some are unit-titled. All of the leasing is managed by Te Aro Tenancies, a company run by Cassels’ son, Alexander. Affordable urban accommodation has wide economic benefit for a city in Cassels’ eyes.  

“I think $180 per week for a room in an apartment in Wellington city offers superb value,” he says. “There’s no need for a car and there’s access to good food, culture, education and the brightest ideas market in  New Zealand.”

Not one to let a good opportunity go by, Cassels is currently embarking on the conversion of 4,500m2 former office space on The Terrace to high end apartment/hotel accommodation with a completion date planned for March 2016.

Post office to homes 


North of the Wellington CBD in the satellite city of Lower Hutt, Jackson Holdings Limited director, Kevin Melville, is putting his money where his mouth is and investing in the future of the often-maligned Hutt Valley.

“As a city, Lower Hutt will come back,” says Melville. “The empty shops along the main street will not remain that way forever. Landlords will wake up to the fact that having no tenants is not good for anyone. I want to see the tumbleweed blown right out of town.”

Melville says his company was a pioneer in salvaging tired, old, vacant buildings in the Hutt area and breathing new life into them. Petone has been the focus of much of Melville’s attention and generally, he’s kept retail on the ground floor and developed residential living on the upper levels, in line with council planning requirements. 

He developed the 19-unit Atrio Apartments in Jackson Street; redeveloped the former picture theatre into an apartment block; and intends redeveloping the former Firemans Arms pub site into a multi-residential offering.

Most newsworthy in recent times is Melville’s purchase of the former Lower Hutt Post Office – a landmark Art Moderne building on the corner of High Street – which he picked up for $700,000, less than one quarter of its rateable value.

“Sure, there were seismic issues but actually, not as bad as initially thought when New Zealand Post vacated and sold the property,” says Melville.

“Naturally, the seismic issues worked in our favour price-wise when buying the property. We’re fully upgrading the property, 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. There’s a lot of life left in the old girl yet.

Melville says the building’s existing hallways, stairways and lift work nicely with the plans drawn up for the apartments. “Internally, the high studs, deep architraves, entry lobby tile features and other architectural detail will make this development stand out,” says Melville.

“To be quite honest, we don’t know what the market will make of these apartments and how they will be received – but we’re quietly confident that they will meet a gap in the wider Wellington region’s rental market.”

The building’s former life as a Post Office included significant carparking space which Melville will be retaining – perhaps controversial in the age of promotion of public transport for apartment dwellers.

“I believe it should be up to the individual developer to choose whether or not they include car parking within their developments,” he says. “In my eyes, traffic is the by-product of a successful city.”

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. Melville’s Jackson Holdings Limited business model is to retain ownership  of their developments and lease out the accommodation.

“That’s definitely our preference – we keep the assets and remain as landlord.”

Boutique offerings


In Auckland, Tawera Group is a 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 the company’s profile in recent years has been largely founded on conversions and he admits they’ve enjoyed being at the leading edge of the demand for quality, upper-end inner city living opportunities.

“It’s a case of right time, right place,” he says. “Every conversion we have undertaken has been very site specific. The buildings we have chosen to convert have been in aspirational locations and that is what would limit us in the future – finding sites with those underlying locational credentials.

“There are three or four commercial buildings in inner Auckland that I would snap up tomorrow if they became available – luxury apartment living is a great use for a building that has done its bit for commerce in the city.” 

Changing land use from a commercial office tower to a residential offering favours the brave. “With land opportunities being so scarce in desirable locations, we are put in a position of having to think laterally and identify optimal sites where people would ultimately want to live,” says Mahoney.

“There are so many pluses associated with a conversion. One of the main ones is that prospective purchasers can actually see the building from day one. It is tangible rather than just a drawing on paper.

     

“Being able to take a potential buyer to the actual building and to the exact spot where their future apartment could be is such a bonus and gives a context to the development that is simply not possible with a build-from-scratch scenario. 

“Then there is the time factor. We can cut a lot of months off the build programme when we are working with an existing building and because we will have done the necessary due diligence to establish the building’s integrity, we can get to work quickly once the concept plans are finalised.”

On the flip side of the equation, Mahoney says even the best-investigated conversion project can uncover unknowns. “Sometimes we can open up walls and find stuff we didn’t want to see – but that’s all surmountable and on par with the usual ups and downs of construction.”


Mahoney says when they launched  the luxury Hopetoun Residences project with apartments ranging in size from  59m2 – 140m2, a lot of people thought  they were “going too big” and questioned their reasoning.

“But we had a gut feeling that this is what our market was demanding,” says Mahoney, “and the speed at which the project sold down was reinforcement of this.

“The credentials of the location will, to a large extent, determine the type of build. “Building on the fringe of Ponsonby, prospective purcha energy outside of working hours.”

Mahoney says while there is a push to cut back on car parking associated with new residential developments, Tawera Group always tries to add parking into their conversion equations.

“I’m all for public transport, but I’m afraid Auckland is just not quite there yet,” he says. “Parking is essential to our product offering. This is not pure investment stock and our typical residents will often own more than one car.”

Southern activity 


In Dunedin, there have been several high-profile conversions of former commercial stock to residential living and there are more underway. The city’s heritage warehouse buildings are morphing into desirable residences – such as the Stavely Bond Apartments in the 1879-built former merchants’ building and the planned apartment conversion for the former Bell Tea factory and warehouse which was sold last year.

The concept of inner city office conversion to apartment living is in its infancy in regional New Zealand although there are signs that it may be emerging. In Nelson, the council is proactively encouraging the practice. 

Nelson City Council’s senior engineering officer, Shane Overend says its development contributions policy 2015 offers to waive some development levies for developers who convert CBD space into inner city living.

“The council wants to incentivise the development of residential inner city living options, something it sees as a long-term objective,” says Overend  “The council’s development contributions policy remits contributions for 30 new units in the CBD each year over the next five years.  “Currently there are four residential units approved under this system –  all conversions.”

As underlying property fundamentals continue to evolve around the country, expect to see a reshuffle of existing commercial stock to fit new demands.