Can office to residential conversion work?

“Investa, with its partner and part owner, Oxford Properties, is very active in this area,” Cook added.

But the co-founder and chief executive of architect firm Place Studio, James Alexander-Hatziplis, said there is expected to be an increase in the number of CBD offices being converted into residential dwellings over the next few years – and this is attracting the interest of some of the country’s largest institutional investors.

“Several of the country’s CBDs have recently witnessed an increase in office vacancies and thus falling property yields, this is despite the end of COVID-19 and employees returning to the office, at least part of the week.

Victorian Premier Daniel Andrews recently said Melbourne CBD’s future vibrancy could depend on increased resident numbers and converting office space into dwellingsCredit: Chris Hopkins

“The demise of some of these offices is the result of business tenants seeking to reduce costs as inflation and interest rates rise – and seeing reducing the amount of office space as a means to reduce their expenses.”

Within the office market there is a bifurcation between the new and upmarket towers, where vacancy is low, and older towers, where vacancy levels are in the high double digits.


This has led to the “flight to quality” trend where savvy tenants are taking up smaller space in new buildings as they know landlords are pressured to lease space when larger tenants downsize. In the past smaller tenants did not get a look into shiny new towers where the rent was a high as the buildings.

But with the embrace of flexible working practices, tenants now rule the roost over the building owners.

In the most recent Property Council of Australia’s office market report, to the end of January, Sydney’s CBD’s vacancy rate jumped from 11.1 per cent in the first quarter of 2022 to 11.3 per cent in the first three months of 2023. Melbourne sits at 13.8 per cent.

Recently, Victorian Premier Daniel Andrews said Melbourne CBD’s future vibrancy could depend on increased resident numbers and converting office space into dwellings. Adelaide Lord Mayor Jane Lomax-Smith similarly recently pitched the idea to investors of converting underutilised office spaces into residential offerings.

For investors, the residential rental market has exploded, with residential square metre rates for rental surpassing their counterparts with commercial tenancies.

Alexander-Hatziplis said the large floor heights of commercial towers, typically 3.5 to four metres, provide a superior product to purpose-built residential flat building stock that generally have 3.1 metre floor to floor height levels.

“This means converted stock result in higher ceilings and a more luxurious offering,” Alexander-Hatziplis said.

But he added that converting offices to residential premises requires more than quick interior fit-outs. There are specialist turnaround techniques to change old office buildings into successful residential complexes and apartments that people will want to invest in, own, and live in.

Not all commercial and office buildings will convert into residential stock. New buildings are more open plan with stairs to connect floors, while the older buildings have small footprints and cubicles that can be more easily converted.


Associate professor Philip Oldfield from UNSW’s School of Built Environment said in a recent paper that office buildings are fundamentally different regarding space – they are typically big and open and deep – and this impacts their ability to meet the architectural and design needs of residential space.

“This frequently translates to long, thin apartments with limited access to natural light and restricted access to ventilation, both of which are important for comfort, health and wellbeing. Often this also means apartments with windowless bedrooms,” Professor Oldfield said.

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