How repurposed office buildings are helping to solve Australia's housing shortage

With vacancy rates in older, B-grade office stock sitting around 19.3 per cent in Canberra, 18.5 per cent in Melbourne and 15.8 per cent in Sydney, more asset owners are looking to repurpose their sites into housing.

Many are on CBD fringes, close to excellent infrastructure, so can be extremely attractive for residential investors, especially with soaring construction costs for new builds.

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“We’re seeing this happen more and more across the country,” says Colliers national director of research Joanne Henderson, who’s studied the growing trend in Sydney, where offices are both being adapted for reuse, or torn down with the land used for new apartments, particularly in areas like North Sydney, Chatswood and St Leonards.

“We’re now seeing a lot of repositioning of old offices with high vacancy rates, to create new housing that’s really needed. Our forecast vacancy rate for 2031 for these buildings was about 14 per cent, but if all the plans go ahead, it will come down to 7.3 per cent, with the new homes and existing tenants moving to other offices.”

A good example is at 5 Blue Street in North Sydney, which has been the first development to win approval – to retain the commercial core and readapt to residential – through the Housing Delivery Authority and State Significant Development process. It will become a 14-storey mixed-use development, comprising ground-floor retail, 62 apartments, 86 co-living housing units, and the refurbishment of the nearby plaza.

Pro-Invest Group chief operating officer and general counsel Anthony Ursino says there’s been a strong movement towards repurposing these office buildings nationally, especially with the higher cost of capital and the sustainability benefits of re-use.

“We’re seeing investors buying whole buildings and doing the development work to turn them into build-to-sell apartments or build-to-rent homes, or co-living type uses,” he says. “Some of them have large floorplates but not necessarily the services, like plumbing, or the columns, in the right place for residential use.

“If they’re smaller, or skinnier, buildings, it can be a bit easier. But it also depends on planning and zoning, as a lot of offices are in areas zoned for commercial, where hotel or longer stay can maybe fit in. But these offices definitely represent an opportunity for investors if the demand drivers are right.”

For high-net-worth investors, the old offices can yield an excellent return if they have the means, and the appetite, to bankroll their redevelopment, says Steve Palise of Palise Property Buyers Agency. Other investors should seriously consider buying the new apartments or retail spaces that they become.

“You just have to make sure they tick all the boxes with the fundamentals, as well as council approvals and all the building inspections in case corners were cut in the adaptation and, for instance, with apartments, there’s sound-proofing installed,” he says.

“If they’ve been converted into retail, like co-working areas or gyms, then these can make sense for investors too, as long as they have good foot traffic and access. This is a trend definitely happening around CBDs, as well as five to 15 kilometres outside them.”