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    Sydney and Melbourne lead in office conversions into residential developments

    Residential developers are increasingly acquiring well-located secondary commercial buildings for future residential development. This trend is largely being observed in Sydney and Melbourne, with the two cities leading the way in Australia for residential development conversions well above commercial book value.

    JLL’s latest Corporate Solutions Research report, The Wrap revealed that Sydney’s strong appetite for residential conversions will maintain a balance of oversupply through absorption of excess older-style commercial stock.

    JLL’s head of Tenant Representation for NSW and ACT, Gavin Martin explains that over $1 billion worth of commercial property has been purchased in the last year, with the intent to redevelop or convert the site for residential use.

    The Wrap, which considers the future for ageing stock in Australia’s CBD office markets, observes that strategies across capital cities vary, but reports the greatest push in Sydney and Melbourne for residential development conversions.

    A May 2014 report by JLL Research estimated that nationally, 46,940 sqm of office property were withdrawn for residential development in 2013, up from 25,794 sqm in the previous year, with much of this increase driven by activity from Asian developers. JLL Research has noted a rise in conversion of office space into residential use over the past five years, particularly in Sydney.

    The situation is different in other parts of Australia. Brisbane’s CBD may benefit from a proposed council program of incentives that would see the State Government and Brisbane City Council offering a program of incentives and support to encourage the conversion of older stock to alternative uses.

    Thanks to the mining and resources boom, Brisbane’s leasing market has been riding high over much of the last decade. While other CBDs were disposing of excess ageing stock via residential conversions or hotels, Brisbane continued to lease its commercial space and retained most stock.

    Canberra may witness the refurbishment, demolition and redevelopment of older stock for commercial office use, according to the report. However, Martin advises that with Canberra’s commercial office market, productivity gains must be considered before making any change.

    A similar situation prevails in Perth, which according to JLL, has the highest number of buildings over 20 years old in surveyed areas of CBDs across Australia.

    According to JLL’s Head of Tenant Representation for WA, Andrew Campbell, given the various influencing factors including recent zoning changes with increased plot ratio allowances in the CBD, this ageing stock with large vacancies is more likely to be completely refurbished, or demolished and redeveloped, rather than converted to residential, as is being seen in other capital cities.

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