Time for flats in office buildings and hypermarkets

Will the non-functioning office buildings and shopping centers be taken over by a residential building? There are votes for and against.

The act being prepared by the government is to significantly simplify the transformation of office buildings and shopping centers with an area of ​​more than 2,000 sqm in residential buildings. Thanks to the new regulations of the Ministry of Development and Technology, changing the functions of such real estates is to be possible without a building permit and submission of a construction design, even if the conversion requires the reconstruction of the facade of the building, without interfering with its structure. However, the act processed under extraordinary procedure is to be an ad hoc solution, valid only for two years. Developers who want to enter into such investments must therefore hurry.

However, Avison Young experts are wondering whether faster procedures will encourage investors to implement such projects. Can a law that is in force only for a short period have a real effect on the market? In times of high interest rates and limited creditworthiness, is the demand so high that it is required to introduce special, temporary laws freeing up new land for housing?

Undoubtedly, it is much easier to design and carry out investment processes on undeveloped plots than to change the function of the buildings within the plot. Developers evaluate the solution as interesting, while noticing its limitations.

The size of the expenditure is crucial:
In the opinion of development companies, the mere transformation of office and commercial buildings into residential buildings generates difficulties. Such conversion requires a strong interference with the structure of the facility, installations, etc. In office buildings or shopping centers, there are usually much fewer plumbing risers, the floor layouts are usually much deeper. As a result, not every commercial building can be easily transformed into a residential building, and sometimes it is impossible at all, if only because some of the space does not provide access to natural light. Even if it were technically possible, adapting to residential functions, especially shopping centers, may prove too costly to make economic sense. And also demanding, due to their specific layout and a small number of windows.

An office space with an unusual height for apartments, equipped with air conditioning and an air exchange system, gives a greater opportunity to arrange attractive residential premises. Western markets, such as Paris, can boast many such successful transformations. Former office buildings can offer additional attractions in the form of an elegant lobby, recreational zones and additional amenities in common areas. However, they lack balconies and have different parking space factors than those required in flats.

Environment for the price:
Avison Young points out that the arguments in favor of the real estate redevelopment are certainly the environmental benefits. Investments based on the use of existing facilities for other purposes are in line with the general trend of environmental protection, only by reducing the demand for cement, the production of which is responsible for 5 percent. global carbon dioxide emissions.

Producers of apartments point out, however, that the housing offer is met with market interest if the premises meet the most important, current expectations of buyers, among which they mention: attractive location, good access to infrastructure, optimal finishing standard, functional arrangement of rooms with additional space in the form of balconies, terraces or gardens. Otherwise, the ratio of the price of the "final product" in the reconstructed buildings would have to be competitive with the classic housing offer.

New investment doors:
According to developers, the greatest investment opportunities are created by large areas occupied by older generation hypermarkets in the format of a one-story facility, enabling effective development of multi-functional housing estates with multi-storey buildings that would provide residents with various amenities. Avison Young experts estimate that the possibility of implementing such projects is met with the greatest interest among investors, but in this case it is difficult to talk about transformation. The function is changed into a residential one by demolishing the facility and implementing a new investment from scratch.

The legislator took into account the needs of investors in the final stage of work on the bill. Ultimately, the new regulations on transformations will also include changes to the special housing act. To facilitate the conversion of undeveloped land for housing construction, which in the local study are intended for large-scale commercial facilities without the need to change spatial development plans.

Opening this possibility seems most tempting to investors who have long had difficulties obtaining investment land in the largest cities. In a situation of a small supply of attractive greenfield plots, this solution may prove to be the most suitable and have the greatest market impact.

However, Avison Young points out that the banks' approach to such investments may raise concerns. It is likely that they will take a skeptical stance towards them and will be reluctant to finance projects without a building permit.

One should consider whether, in the case of the already very complicated and unclear spatial planning system in Poland, the introduction of further temporary regulations is a good direction? Perhaps a greater facilitation for the housing market would be simply to organize the regulations and introduce much simpler, uniform and clear procedures?

An excellent example of the negative effects of quickly created temporary regulations is the special covid act, which, abused by many investors, allowed for the construction of residential buildings in the buffer zone of nature reserves or in the area of ​​seaside resorts.

Author: Piotr Łopusiński, Associate Director, Investment at Avison Young