Developers in Australia have been converting older commercial sites into residential developments on the back of a booming housing market, increasing supply of new office space and slowing tenant demand, according to media reports.
In 2013, almost 47,000 sqm of office space was removed from the market to be redeveloped into apartments, said JLL.
In Sydney, developers acquired AU$364 million worth of office buildings last year to turn into apartments, revealed Colliers International.
Rupa Ganguli, Director of Australian Residential Research at JLL, said the rise in conversions was driven mainly by Asian developers, such as Singapore’s Far East Organization and China’s state-backed Greenland Holding Group.
In fact, the AU$107.5 million acquisition by Greenland of the 50-year-old former water board office in Sydney and Far East and Australian pension fund CBUS Super’s purchase of two buildings for AU$143 million and AU$59 million respectively were among the largest transactions up for conversion last year, Colliers said.
“You’ve got a lot of new buildings being developed and a lot of tenants moving out of older buildings into newer ones,” said David Milton, Managing Director for Residential at CBRE Group, adding that the best use for old office buildings is to convert them into apartments given their rising values.
Average apartment prices in Sydney rose by over 10 percent in the year ended 28 February to a record AU$573,323, according to the RP Data-Rismark Home Value Index. Melbourne reported a seven percent uptick to a new high of AU$488,827.
On the other hand, office vacancies in Sydney increased seven percent at the start of the year from 7.2 percent a year before, while Melbourne saw office vacancy rise 8.7 percent from the previous year’s 6.9 percent, and is expected to climb further to 9.7 percent by end-2014.
Romesh Navaratnarajah, Senior Editor at PropertyGuru, edited this story. To contact him about this or other stories email romesh@propertyguru.com.sg
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