The housing shortage in the big cities is increasing. One possible answer: converting former office buildings. Experts see a lot of potential – even if there are still problems in practice.
It’s an almost comical sight: “Completion expected at the end of 2021” says the sign hanging in front of the “Steglitzer Kreisel” in Berlin. The former office tower is something of a showcase of how high-flying real estate plans can go wrong. Because just a few years ago, the building was considered a prime example of how a new residential complex can be created from an old office building. 120 meters high, with 30 floors and space for more than 300 residential units: That was the plan.
Especially in Berlin, where every new apartment is needed, some hopes rested on the project. Instead, there was trouble with the building fabric, a change of ownership and changes in plans. Today only scaffolding shows that there should actually be construction here. Instead, the model project has become a deterrent example. It might not be that easy to turn an office tower into a residential building after all.
A sign on the “Steglitzer Kreisel” construction project. It is unclear when apartments will be available here.
Almost 20,000 apartments by 2025?
Helge Scheunemann, Head of Research at the real estate consultancy JLL, says exactly that: There is great potential for the housing market in Germany’s old office landscapes. The Steglitzer Kreisel is just an isolated case. “Actually, the property is ideal for a change of use,” he says. “In theory, at least, this is a good example. The fact that the project is not yet finished certainly has reasons that lie in the individual case.”
Scheunemann recently calculated how many square meters of office space in Germany’s seven largest cities could be converted into living space. The result: almost 20,000 apartments by 2025 – if things go quickly. But so far it hasn’t. Only in Frankfurt am Main were old office towers converted. “In Frankfurt you can see that this can definitely work. The city has the advantage because the vacancy rate has been very high here for a long time – and because the high towers there are best suited for conversion,” says the real estate expert.
Changed market situation
By vacancies, Scheunemann means the phenomenon that the demand for office space is declining in almost every major German city. At the same time, however, the need for living space has been increasing for years – in the same cities.
And for the future, many analysts expect the need for classic desk jobs to continue to fall – also because of home office and teleworking. “Until now, offices have always been a profitable asset class. There was actually no reason to convert vacant office properties. That is now changing. There is now a question mark behind the office asset class,” says Scheunemann. “There is a convergence between office and apartment rents.”
Apartments bring profits
Once considered a conservative investment in housing, it now offers decent returns – due to low vacancy rates and rising rents. However, Scheunemann’s calculations also show that the apartments being built are more likely to be of interest to owners and tenants from the middle and upper classes: “We are certainly not talking about socially subsidized housing construction. In most cases, it should not be inexpensive housing, but rather apartments in the middle and higher price segment.” But that also helps to take the pressure off the market as a whole.
According to Scheunemann’s calculations, the “offices to apartments” model is not really suitable for real estate speculation either: “We assume that whoever owns the property will convert the building. That accounts for the majority of the cost savings.”
And he also cites an increasingly important argument based on climate protection requirements: “From an ecological point of view, demolition and new construction is always more complex and expensive than renovation.” But he also doesn’t believe that in a few years there will be rows of people living in former office towers: “No, the conversion cannot solve the problem on its own. But it can be a building block.”