Offices prime for conversion

Property researcher Damian Stone. Picture: Nic Ellis/The West Australian.

Weak office leasing demand in Perth, especially for older buildings, and stronger demand for apartments could set the stage for building conversions in the CBD during the next five years, according to property research firm Y Research.

In an adaptive re-use study, the consultancy found a big proportion of Perth's ageing office stock was potentially viable for conversion to residential apartments in projects that could save on construction costs and take advantage of existing sites and infrastructure.

According to the study, which assessed buildings according to their size, age, grade, location and ownership, as many as 116 office buildings in the CBD and on the city fringes could be put to residential use.

Collectively these buildings contain 921,700sqm of office space and based on the average apartment size in new developments, could deliver 11,240 new apartments. Lower grade buildings don't compete well with better quality buildings when demand falls for office space.

Property Council figures from January show the vacancy level in B-grade buildings was 11.3 per cent and 12.3 per cent in C-grade buildings and these rates are expected to worsen significantly when first-half figures are released. According to CBRE, rents in secondary buildings declined further in March due to a more aggressive increase in vacancy levels.

In the office delivery cycle for the next five to six years, property researcher Damian Stone said the CBD and key suburban markets would get close to 400,000sqm of modern office space with large floor plates and the high environmental ratings demanded by government and private tenants.

Combined with the slowdown in the resources sector which has stalled the overall market, he said owners of older buildings were left with three options - refurbish the building for continued use as an office building, explore the potential for conversion to residential or tourism or demolish for a new development.

"Traditionally Perth developers have favoured demolition but nationally there has been a trend in the past year towards residential conversion," he said.

"More than $700 million of older stock has been sold in Sydney during the past year with plans for conversion to residential buildings. Based on the office market forecasts, the conversion trend is likely to occur in Perth in the coming years, to what scale it will depend but there will be cases in the next five years."

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Offices prime for conversion