Office space in the right location and with the right floor design can be successfully repurposed into student accommodation. Picture: Mart Production/Pexels
As many office buildings in South Africa stand empty or are used by only a small portion of staff following the shift to remote working, investors are eyeing them out for conversion into student accommodation.
After all, the country is in dire need of student housing while it has a declining need for traditional office space.
Even though many people have returned to the office, FNB commercial property economist John Loos says vacancy rates are still relatively high, and even in cases where employees do work from the office, they do not utilise all the space and are often not in the office every day.
“Not everybody has gone back to the office as working arrangements remain more flexible, and a lot of corporate tenants and owners of office space that is occupied are not utilising it fully. Even on peak office working days a lot of offices are still not full.”
Peak working days, he says, are usually Tuesdays, with attendance tapering off on Wednesdays and Thursdays. On Mondays and Fridays, offices are ghost towns.
“Before remote working, low attendance periods were Saturdays and Sundays, but now it is Friday, Saturday, Sunday, and Monday – and even Thursday.
“So do companies still keep so much office space for two or three days of the week out of seven? It is costly, so what do you do? Do you find other tenants who need more office space on weekends or Fridays and Mondays?”
Loos says office space has to still change a lot, and will need to shrink its size.
Many offices were already being converted to residential properties before Covid, but since the increase of remote working, this is being seen more. Now, investors are seeing opportunities in the conversion of unused offices into student accommodation.
The shortage of affordable student accommodation that is well-located near tertiary institutions has moved past being a mere trend and become the status quo, says Norman Raad, chief executive of Broll Auctions and Sales. The 2021 International Finance Corporation Report states that South Africa’s student housing sector had a shortfall of as many as half a million beds, which resulted in property companies such as Growthpoint reaching into their pockets to counter downturns in other areas of the property market. Earlier this year, Higher Education Minister Blade Nzimande put this figure at 400,000.
“Investors with a vision can currently snap up under-utilised buildings such as office blocks at excellent prices, and convert these into cost-effective student housing offering stable returns.”
Shared housing options, he says, maximise space efficiency, accommodating more students in a smaller footprint and bringing down costs for all. Students either have their own or shared bedrooms, and shared communal spaces such as living rooms, kitchens, and bathrooms.
With a desire to have the world at their fingertips, students of today also want to be in the middle of the action.
“This can be seen in the trend to have student accommodation located in mixed-use developments, with some retail or entertainment aspects.”
For property investors who are seeking to build resilient portfolios that can weather possible downturns, Raad says student accommodation offers a lower-risk, lower-reward type of investment, and remains a resilient asset class.
Grant Smee, managing director of Only Realty agrees, saying there is a promising opportunity to convert office space into student accommodation. This strategy holds the potential for significant returns for investors but needs to be approached with caution.
“Finding a building with the right layout to maximise living space, while ensuring the presence of essential communal areas and amenities, is crucial for making the space suitable and appealing for student accommodation.
“Location, as in any property investment, is equally important.”
The conversion cost, although generally cheaper than constructing from the ground up, can still be significant as the investor transforms the office space into residential units, he adds. Other vital considerations for student accommodation include security infrastructure, access control, parking availability, and proximity to public transportation. Moreover, once the student accommodation is established, the day-to-day operation of the building, resident management, maintenance, and financial management become particularly important aspects of running a student accommodation business.
“From a location perspective, the building must be conveniently situated at transport hubs, providing easy access to students from various campuses and educational institutions. This approach ensures a consistent demand for the accommodation provided.”
Smee says typical room set-ups consist of approximately 18 square meters, incorporating a bed, desk, wardrobe, a small kitchenette, and a bathroom with a shower. High-speed fibre internet is essential and should be included in the rent. Electricity can be metered on a prepaid basis for each room.
“Communal lounge areas for socialising and studying are essential, especially given the relatively compact room sizes. In cases where individual kitchenettes are not provided in each room, communal kitchens further enhance the shared living experience.”
Amogelang Mocumi, fund manager of Growthpoint Student Accommodation Holdings, says office space definitely holds potential for student accommodation conversion, but warns that not all offices will be suitable as the existing buildings need to have suitable floorplates to insert the right accommodation.
“In fact, we are converting an office building located in Parktown, approximately 350 metres from Wits University’s Health Science and Education Faculties. The property will be converted into a 495-bed student accommodation facility. This new development will have all the amenities available in the Thrive Student Living portfolio, such as study rooms, games rooms, a gym, and, more importantly, students will have access to our student life programme that will be specifically curated for that market segment given the different needs of health sciences students.”
Besides addressing the demands for housing, Gavin Kelsey, chief operating officer of Just Property, says offices are generally situated close to amenities, particularly transport, making them attractive solutions for a wide range of people. Converting office space into residential units allows larger areas to be divided into a greater number of smaller, more manageable units that make these projects more viable. In addition, the core structure is usually left intact, reducing costs when compared to building a new structure.
“Another benefit is the upliftment of the areas where many vacant buildings are given a new breath of life and receive ongoing care and maintenance, not to mention the employment opportunities they create.”
Potential drawbacks, however, can be insufficient services such as water, sewerage, electricity and parking, he says. This has to be addressed during the feasibility study along with possible zoning restrictions pertaining to the use of the building.
“Converting to residential units could reduce the return on investment and value of the building, where offices were once in demand, however, income-generating properties always outweigh vacant real estate.
“In short, strategic assessment and due diligence in optimising real estate space is a smart option, with more pros than cons.”
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