Sydney and Melbourne lead in office conversions
Sydney and Melbourne are leading the way in Australia for residential development conversions well above commercial book value, according to a new report by JLL.
JLL’s latest Corporate Solutions Research report, The Wrap, revealed that Sydney’s strong appetite for residential conversions will maintain a balance of oversupply through absorption of excess older-style stock.
“Over $1 billion of commercial property has been purchased in the last year, with the intent to redevelop or convert the site for residential use,” said JLL’s head of Tenant Representation for NSW and ACT, Gavin Martin.
The Wrap, which considers the future for ageing stock in Australia’s CBD office markets, said strategies across capital cities vary, but reports the greatest push in Sydney and Melbourne for residential developers to acquire well-located secondary commercial buildings for future residential development, at prices well above commercial book value.
In a May 2014 report, JLL Research estimated that nationally, 46,940 sqm of office property was withdrawn for residential development in 2013 – up from 25,794 sqm the year prior. Much of this increase was driven by activity from Asian developers. JLL Research noted a rise in conversion of office space into residential uses over the past five years, particularly in Sydney.
Across Australia, the situation varies according to The Wrap. Brisbane’s CBD may benefit from a proposed council program of incentives that would see the State Government and Brisbane City Council offering a program of incentives and support to encourage the conversion of older stock to alternative uses.
JLL noted that, thanks to the mining and resources boom, Brisbane’s leasing market has been “riding high over much of the last decade”.
“While other CBDs were disposing of excess ageing stock via residential conversions or hotels, Brisbane continued to lease its commercial space and retained most stock,” the report said.
“That stock now contributes to the average age of Brisbane’s buildings rapidly approaching 30 years old and approximately 44 per cent of Brisbane’s CBD office stock being classified as B-grade, which is the highest of all major capital city markets, compared to an average of 27 per cent across all CBD markets.”
Canberra may witness the refurbishment, demolition and redevelopment of older stock for commercial office use, according to the report.
Martin said that with Canberra’s commercial office market, productivity gains must be considered before making change.
“If an existing fit-out works and the size of the space is appropriate, then the likelihood of a renewal will be higher than that of a move,” he said.
“Ageing stock in Canberra is likely to undergo a similar cycle to the refurbishment and demolition that other states are currently experiencing; however, it may not come to fruition for years due to slower demand.”
It’s a similar situation for Perth, which according to JLL, has the greatest amount of buildings over 20 years old in surveyed areas of CBDs across Australia.
“Due to a number of influencing factors, including recent zoning changes with increased plot ratio allowances in the CBD, this ageing stock with large vacancies is more likely to be completely refurbished, or demolished and redeveloped, rather than converted to residential – as is being seen in other capital cities,” said JLL’s Head of Tenant Representation for WA, Andrew Campbell.