The office markets in Sydney and Melbourne have been one of the hardest hit during the pandemic – with many offices vacant, ideas about whether converting them into apartments would be a good thing are surfacing.

Michael Yardney, CEO of Metropole Property Group, said one of the significant impacts of the COVID-19 pandemic has been the trend of flexible working from home, which has reduced the need for office space for many businesses and businesses.

“While in the past more Australians traded space for a place, they wanted to live in the inner city where the action is and traded their backyards for balconies. Today, due to the convenience and popularity of working from home, living in a city center is slowly becoming lose status,” he told Your investment property.

“This has led to significant vacancy in the high-rises of our capital and a significant drop in demand from both owner-occupiers and tenants and this is unlikely to change anytime soon.”

Figures from Knight Frank show that vacancy rates in Sydney and Melbourne have risen.

As of the July quarter, vacancy rates have risen to 9.2% for Sydney and 10.4% for Melbourne.

Based on current circumstances, Knight Frank expects these rates to increase in the coming quarters.

Making offices a home

In an interview with The Australian, Meriton founder Harry Triguboff, dubbed “high-rise Harry”, put forward the idea of ​​converting vacant offices into condominiums.

“Since we have devalued the city by having empty offices, we have to act quickly if we want to use existing offices for apartments,” he said in the interview.

Mr Triguboff did not hesitate to speak as he said he plans to convert some of his serviced apartments into residential units.

The only challenge, however, is the approval of the city council.

“We have to forget about overshadowing; we just have to have new rules that allow the use of the old offices and serviced apartments. The urgency is to rebuild the city,” he said.

While Mr. Triguboff’s idea could have benefits, Simon Pressley, Propertyology’s head of research, said there are many considerations.

“The housing structure is obvious, but a conversion from office to residential requires the installation of utilities for each and soundproofing, plus there are body considerations,” he said. Your investment property.

“I see no reason why it couldn’t, but I doubt the future level of demand for inner-city housing as the main driver in the past has been inner-city working.”

From empty offices to empty houses

Turning office spaces into residential apartments would also have a greater impact on the housing market, as it would only exacerbate the current oversupply of units in CBDs, Mr Yardney said.

A report from CoreLogic showed that the highest growth in lists still appears to be concentrated in less desirable owner-occupier markets, such as the unit segment and in markets with a high concentration of investors in Sydney and Melbourne.

“The bigger problem is that many of the tall towers built in the past 15 years were built with little regard for the quality of the structure, many had poor floor plans, and a large percentage were designed with foreign investors in mind,” he said. Mr Yardney. .

In addition, Mr Yardney believes that after experiencing a pandemic, most people would probably opt for larger family-friendly apartments with balconies and outdoor spaces, something most office towers don’t have and are impossible to retrofit.

Prospects for apartments

Mr Yardney expects the general real estate market to remain strong through the end of the year as it continues to be driven by pent-up demand.

However, he said the reopening of borders and changes in migration patterns will continue to have an impact on where the market is headed from the current conditions.

“As we build many new homes in the suburbs, very few new apartment blocks are on the drawing board, and beyond the oversupply in the CBD, there will be a shortage of well-located apartments for this increasing demand,” he said.

“As the gap between house prices and apartments has never been greater, it is likely that affordability constraints will lead some homebuyers to view family-friendly apartments as a viable alternative as detached houses now exceed their budgets.”

Meanwhile, Mr Pressley is not so optimistic about the volatile markets of Melbourne and Sydney, saying these two markets remain vulnerable to risk.

“As for high-rise apartments, these were a problematic asset class for the decade leading up to this pandemic, and the pandemic adds another cause for concern,” he said.

Photo by Raj Rana on Unsplash