In recent months, Y Research has been involved in a thought leading project for the City of Perth. Through lead consultant’s architects Cameron Chisholm and Nicol (led by Principal Dominic Snellgrove and Associate Director Deborah Binet), Y Research provided market research data and market commentary for an in depth study looking at potential uses for vacant, C Grade office properties.
A third of all office space in WA is C Grade rated space. According to the latest Y Research study, for each market (Perth CBD, West Perth and suburban office markets), there is currently just under 340,000 sq m of C Grade space vacant across metropolitan Perth. This represents a C Grade vacancy rate of 25.7%. This is the highest of all grades. C-grade buildings are generally older than 20 years, smaller than modern buildings with older finishes and fewer services than newer buildings.
The study looked at 6 potential uses for over 175 C Grade office properties in the Perth CBD:
- Refurbishment to A Grade standard;
- Convert to Multi-residential;
- Convert to Student accommodation;
- Convert to Education – Creating ‘vertical schools’;
- Convert to a mixed use including a vertical supermarket, co-working space and co-living space; and
- Convert to Health and wellbeing, including medical suites for GP’s and specialists and a gym.
Each concept is supported by a series of key considerations, including structural interventions, service upgrades and building code compliance. The key outcome of the report is that a thorough analysis of any proposed scheme in terms of the benefits and constraints, including cost, has been undertaken in order to inform owners of the likely viability of a conversion to their property.
Why is the Study Important?
Perth’s office vacancies are unlikely to return to normal Perth levels until the next decade. Similar to past development cycles, significant stock needs to be withdrawn for refurbishment, demolition or conversion to alternative uses. To understand the potential of vacant office buildings, we need to look not at what is there but what could be – could vacant office buildings: become apartments for residents, hotels for tourists, student accommodation for international students or could a supermarket occupy multiple floors of an office building?
Studies such as this play an important role in showing what can be done to older office buildings. With full buildings for the last decade, WA office owners haven’t had to consider alternative uses.
Globally cities are evolving with additional property uses being introduced into central business districts. Conversions for alternative users examined in the study – residential, tourism, student accommodation, vertical supermarkets and health care – have occurred globally and across Australia. In Sydney, office space the equivalent to 4 Brookfield Place towers has been removed by conversions in the last three years. To significantly reduce vacancies, older vacant stock needs to be withdrawn from the office market for conversion to alternative uses or demolition. For Perth to return to a normal level of vacancy, between 50,000-100,000 sq m of office space needs to be withdrawn.
This has occurred in Perth previously. In historical periods of high vacancies, in the late 1990s and early 2000s, significant stock was withdrawn for conversion or demolition. The Duxton Hotel was a former office building as was the former Rydges Hotel. A number of older buildings along Adelaide Terrace and Terrace Road have made way for apartment buildings.
In the current cycle, the conversion of 50 William Street into a vertical Anglican High School was the first building conversion. Currently, the former Telstra building on Stirling Street in Northbridge, is about to be converted to student accommodation – offering over 500 beds for students in the CBD and on James Street, in Northbridge, a former office building is being converted to a Doubletree hotel. It is understood that a couple of office buildings are currently planned to convert to apartments once current leases expire.
The challenge ahead is to make the ideas detailed in the study real. Continued high vacancy will encourage owners, occupiers and Government to come up with innovative solutions and new business models. For those owners with the will and the resources to make a change, Government can assist by being open to different uses. Measures such as lower parking requirements, or plot ratio bonuses for certain uses, could also assist but what will ultimately drive building conversions will be market acceptance from potential occupiers (schools, hotel operators, retailers etc) and market pricing that reflects the cost to convert buildings.
Perth is changing after the boom and our CBD and its office stock is changing to bring more people and activity into the heart of the metropolitan area.
If you would like to more about the study or be involved in the upcoming consultation program for the project, please let me know.
About the Author
Damian Stone is the Principal and Chief Problem Solver of Y Research which specialises in providing independent research and analysis on West Australian commercial property.
Y Research produces a series of regular reports on Western Australia’s commercial office, retail, apartment and industrial markets, as well as providing consultancy services to a range of Government and private clients.
Want to know more, visit our website, www.yresearch.com.au.
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