Converting a commercial property

This Issue This is a part of the Renovations & retrofits feature

By - , Build 186

With the number of people working from home increasing, New Zealand’s office spaces are becoming less commercially viable. Here is one way property owners can pivot to retain the value of their assets.

THE COVID-19 pandemic has had an unprecedented impact on the way businesses operate in Aotearoa New Zealand, with one trend being an increase in remote working. This is leading to many businesses downsizing their office footprint.

Flexible working is driving change

Flexible working practices were already being promoted by Kiwi businesses before the first lockdown, but this has increased exponentially since April 2020.

While for many this may only mean working from home 1 or 2 days a week, the cumulative effect will be a reduced need for large offices as employers seek more flexible working spaces that can adapt to ever-changing office-based staff numbers.

The businesses downsizing their office footprint will reap the rewards of reduced overheads, and there may also be a potentially positive option for property owners and investors – converting commercial or retail spaces into sought-after high-density residential housing.

Growing demand for housing

New Zealand has had a longstanding housing shortage, particularly in our largest cities, coupled with a clear intention from councils to intensify housing in CBD areas. This presents a unique opportunity for investors or owners of commercial property to convert office space into residential units – hopefully realising a greater return in the process.

The conversion of offices into residential units is a trend that’s been unfolding in the UK and Europe for a number of years. It is also likely to increase as lockdowns continue and permitted development rights are further relaxed to address the need for more housing. One high-profile example is the Delta Point development in Croydon, London, where 29,000 m² of office space was converted into 348 new homes.

It’s also something we’re starting to see in New Zealand – including the former TVNZ base in Avalon, Lower Hutt, which is being turned into 68 modern apartments. We’re likely to see more of these projects across our main cities, and it could be a welcome change.

Not only will it provide much-needed housing in areas of high demand, particularly in CBD locations, it will give commercial property owners the respite they need from decreased tenant demand and reduced commercial rents.

Converting a commercial property

As with any major change, there are several things to consider, and it starts with doing your homework. The first question is whether your commercial space allows for a quality living environment – one that is both desirable to potential residents and yields a profit.

Not every office or retail space is suitable for conversion. Even when a space is suitable, there will still be a number of practical issues to overcome. Most office and retail spaces have been designed for their original intended use, not to be used as a living environment. This means careful consideration must be given to natural light, adequate ventilation, quality finishes and whether you have the room required to provide decent-sized living spaces.

The second thing to look at is whether there are any local planning restrictions that may prevent development.

Some locations have covenants preventing residential dwellings, while others are not currently zoned for residential use. You also need to investigate whether the property’s existing utilities will provide sufficient output to supply multiple dwellings rather than one large office space, plus it pays to check the Resource Management Act, which covers any intended change of use for a property, for any potential barriers.

To realise the greatest profit, it’s also important to assess the potential of the building and the site. Look into what’s possible in terms of expansion or repurposing and what it might cost you. These are things such as adding a rooftop development, extending the building within the boundary to allow for additional units or looking at how you can maximise the existing fabric of the building to minimise structural changes.

Wise to seek advice

As with all projects, the outcome will only be as good as those leading the job, and seeking advice from a New Zealand Institute of Building Surveyors qualified building surveyor is a good place to start. They can help you investigate the potential of your property, understand the hurdles to overcome and assess the options.

Building surveyors understand how to unlock the potential value of any building while sticking within the confines of the council and RMA.

Things to consider in office to residential conversion

  • Does the space allow for quality living conditions? Does it provide decent-sized living spaces and offer natural light and ventilation?
  • Does the clear span of the building allow for the internal alterations required to create residential properties of appropriate sizes, proportions and space standards? Are there any local planning restrictions that may prevent development?
  • Do existing utilities provide sufficient output to supply multiple properties rather than one large office space? Is there appropriate drainage to support multiple units without impeding the layout? Retaining the existing utilities and Things to consider in office to residential conversion drainage set-up would allow you to significantly minimise build costs.
  • How can you maximise the existing fabric and minimise structural change? This is crucial to profitability.
  • Does the site have the potential for extending the building within the boundary to allow for additional units? Remember to consider parking arrangements.
  • What sustainable materials and technologies can you incorporate to reduce the energy use and carbon footprint? This is an essential consideration, as the building was not intended for residential use.

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