Converting older, unused Dunedin office spaces into apartments is a good idea but excessive red tape is putting people off, a developer says.
According to commercial vacancy data from CBRE, high-quality office space in Dunedin is close to full while vacancies have increased in older buildings.
The survey, conducted by the real estate services firm over the first half of this year, found only 1.7% of total "prime office space" in the city was unoccupied, compared with more than 10% of "secondary-grade" office space.
CBRE Dunedin commercial valuation director Darren Bezett said it was likely some of this secondary-grade stock could become redundant as office space.
"Conversion of some older office buildings to apartment and hotel uses is likely to emerge when market conditions reach the right levels to make such projects viable."
DRDL 2023 Ltd founder Roger Fewtrell said turning older buildings into apartments was "a good idea".
A lot of older buildings could be expensive "to make nice and modern and warm and clean".
"It's an expensive do-up, so it's probably more economical to turn them into apartments because the demand is there."
However, council compliance issues coupled with safety regulations could make developments "prohibitively expensive".
"Everything you do costs a whole lot of money before you start doing anything, just getting consent and all that stuff, and that puts a lot of people off."
Mr Fewtrell bought the former Trustees Executors building in Water St early last year and construction of the seven-apartment redevelopment was expected to begin in June next year.
That development was an "ideal opportunity" and was not expected to be an overly expensive fit-out.
The company also planned on building 250 homes "and losing $25 million on the deal", Mr Fewtrell said.
"We're a bit of a ridiculous property developer, so we don't need to make a profit.
"Whereas if you're a proper bona fide developer planning on making a profit, it's pretty hard out there — especially in Dunedin."
Mr Bezett said dynamics in the CBD office market were changing.
The introduction of "significant new supply" of prime office space was creating vacancies as tenants moved into new developments.
"Notably ACC moving into its new building, leaving behind a significant amount of older and larger floor plate space which will be difficult to re-lease given current demand."
"We have seen this trend in previous cycles and we are likely to see it re-emerge this cycle.
"Repurposing redundant office buildings into alternative uses is a sensible solution to help reduce oversupply and better align CBD stock with demand over the medium term."
Blue Sky Property Group director Lyndon Fairbairn said the cost of converting older buildings into apartments was "quite an unknown".
A lot of money went into meeting fire regulations and installing sprinkler systems.
"And then you throw in the earthquake strengthening as well and the costs go out the door."
Prices would have to fundamentally increase and building and other service provider costs "stay stagnant for the next five years" for such projects to be achievable, Mr Fairbairn said.
"You just need a bigger gap between the cost to build and potentially what you can sell the properties for, and at the moment we're nowhere near that."
