Value creation through strategic repositioning : a case study of South Bank Tower

Abstract

Converting existing office properties into residential units offers an innovative method to unlock additional value for real estate in the Central Business District (CBD) of certain major cities. Today, however, this form of adaptive reuse is not considered to be a distinct product category. It is instead viewed as a collection of one-off instances of success driven by exceptional circumstances and unique donor buildings. This thesis will identify key commonalities to value creation that make the approach both replicable and transferable. The following analysis will demonstrate that successful office to residential conversion is not a unicorn within the built environment, but rather a viable strategy to see and find value where others do not. Although, a number of factors have combined to make adaptive reuse a highly profitable activity, there are three main elements that underpin the equation: demand, design, and flexibility. Firstly, the change in usage is the result of current trends causing a shift in the Highest and Best Use (HBU) for those structures. Further driving the emergence of office to residential conversion is innovation in building designs. Office layouts have evolved over time from traditional forms with individual work spaces into open floorplan arrangements. Simultaneously, residential layouts have moved away from standard designs towards including an interior extra bedroom or den. The key to driving value from a conversion is for the finished product to be perceived by the market as new supply. Finally, the flexibility to change product type and extend the existing structure increases profits beyond normal levels. Increased net square footage acts as a multiplier to increase the value created through residential conversion and design innovation. Adding net square footage typically occurs in three forms: maximization of site coverage, increased efficiency, and incremental floor count. As a result, it is no longer mandatory to demolish the old in order to make way for the new. Converting space from class B office to class A luxury residential offers a method to add incremental value to previously built real estate by leveraging these essential elements.