Conversion from office to residential sees sharp fall since 2018

There has been much talk over the past few years about the conversion of office space into residential accommodation, as a solution to both the obsolescence of office space for current employers’ needs on the one hand, and the severe shortage of affordable living space for employees on the other.

There are prominent examples all across Germany of old offices buildings undergoing conversion and re-emerging as desirable residential accommodation – the old Bürostadt Niederrad in Frankfurt is one, and Christoph Gröner’s Steglitzer Kreisel in Berlin are just two that immediately spring to mind.

However, the trend for conversion has declined markedly since 2018. The peak years in Frankfurt, for example, were between 2015 and 2017, when 200,000 sqm of office space were converted into living space. This is likely to be only 40,000 sqm this year. 

Oliver Schön, managing director at commercial property brokers blackolive in Frankfurt, believes that, while the demand for office space may well fall in future brought about by Corona, it’s not clear how much of this will end up being converted to residential. Assuming the regulations even permit the converstion of a commercial building to residential, the costs of conversion are a significant factor, but can be as high as €1,000 per sqm. 

That’s not really an issue if the life of the property as an office building is definitely over, for whatever reason. "Due to the corona pandemic and the associated reduction of the commercial space of individual tenants, it is not an impossible scenario that in the future more and more office space will be converted into living space or other uses," said Schön.

Further pressure for conversion is coming from the housing sector itself, where rents have risen steeply over the past few years. As a general rule, 30% is given as the maximum amount a household should spend on rent, but in high-priced cities like Frankfurt, this is rarely the case. "Home office was able to assert itself during the crisis, but is currently not being received as positively by many employees as it was at the beginning of the pandemic. Nevertheless, we suspect that hybrid working will continue with the switch between home and office, which in the long run will lead to companies needing less office space," said Schön.

And not all disused offices will be destined to re-emerge as housing. The huge Neckermann complex on the Hanauer Landstrasse in Frankfurt had 50,000 sqm of offices, but these are largely being converted to data centres, an asset category in high demand in Frankfurt. Envrionmental issues can also play a role, as with the former Teves site on Rebstöcker Strasse, which has first to resolve its contamination legacy. However, the old 23-storey Union Investment headquarters on Frankfurt’s Wiesenhüttenstrasse is being reconverted and will house 130 condominiums and a boarding house with 100 apartments.

There IS an observable trend towards “mixing instead of monoculture” and perhaps a growing aversion to the grey monolithic office buildings of old, which suggests a future for conversions, but for that to happen soon we’ll have to see how the effects of the pandemic on home versus office work pan out.