Much has been made about the possibility of converting the expanse of vacant office space in South African cities to residential apartments. This at a time when the current low-interest rate environment favours first-time home buyers.
Most property developers will argue that it is easier and more profitable to build new residential developments from scratch than to undertake a conversion. Conversions are not as easy as you think, and they don’t always make sense. Converted buildings are never quite as good as a building purpose-built for residents.
Making a case for conversions
While there is a case to be made for certain office to residential conversions in affordable nodes such as the Johannesburg CBD and Randburg, especially for lower-end rentals, it becomes harder to make all the sums work in more expensive areas such as Sandton and Bryanston.
As it stands office vacancies are sitting at just over 14% across SA, thanks to a large amount of speculative development over the past few years before the pandemic. The fact that the economy has barely grown in the past five years means there are no new companies taking up the newly available space in nodes such as Sandton.
As a result landlords have been forced to lower rentals to draw tenants from other, often older properties. This, together with the Covid-19 pandemic that has kept workers from offices, has compounded the vacancy problems. Now many companies are either downsizing or considering it at least.
This has left some landlords scratching their heads, wondering what to do with all the vacant space, with some wanting to repurpose their properties for residential use. You cannot just simply convert an office building to a residential one.
One problem, is that the office properties available for residential conversion tend to be older so-called B or C-grade properties, which are less popular with tenants and usually have the most vacancies.
The buildings are normally very old and infrastructure needs upgrading. Often the office floor plates are too large, and the spaces are too deep. When contemplating dividing the space, it becomes clear that there will be a lack of natural light, making the space less liveable. There are also cases where the buildings are simply not convertible, he adds.