Adapting empty office space for residential and commercial reuse

The world has changed significantly since the COVID-19 pandemic and the resulting global lockdowns – nothing more so than the way in which, and the location where, office employees work.

Following the pandemic, city centres, central business districts (CBDs) or downtowns have fewer people working in the office from 9am to 5pm, Monday to Friday.

This article profiles the long-term issues created by these changes and explores opportunities for reusing under-used and vacant office spaces in Australia's two largest cities, Sydney and Melbourne, as proposed by two research projects. 

Research from Attain Loans indicates that 78% of Australian employees favour a hybrid working model, with the average professional seeking to work from home at least 3.2 days per week – a profound departure from pre-pandemic norms.

Cushman & Wakefield's Rethinking The Australian Office report from 2024, analysing 250 leasing briefs in Sydney's and Melbourne's CBDs, found that 45% of tenants relocating in these CBDs opted for higher-grade but smaller premises, indicating a dual strategy of spatial contraction and quality upgrading.

This process of rationalisation – commonly referred to as 'rightsizing' – has fundamentally changed the demand profile of the commercial office sector.

As organisations of all sizes and across all sectors reassess their spatial requirements in response to reduced, on-site workforce density, landlords of office assets are increasingly compelled to offer flexible leases and greater incentives to attract and retain tenants.

As such, leases previously reserved for significant businesses are now available to lower-tier companies, which facilitates a shift up the commercial leasing ladder.

This has created an issue with vacancy and the under-utilisation of C- and D-grade real estate, which has flow-on effects to the ground-level market.

In the Australian office market, top-quality stock is graded Premium, followed by A, B, C and D. Top-quality stock is owned and managed by commercial entities, whereas the lowest grade stock is more likely to be owned long term by so-called mum-and-dad investors, i.e. private individuals.

The increased vacancy of C- and D-grade office space has resulted in lower demand for retail services and cafes on the ground level in Australia's major cities, as well as globally. 

The issue with ground-level vacancies is that urban centres appear dormant to the public, which can create stigma about them and further devalue potential commercial opportunities.

The loss of ground-level retail and cafes contributes to the feeling that a city is losing its vibrancy, which can also have an economic impact on domestic and international tourism.

To achieve urban sustainability, commercial properties affected by post-pandemic vacancies and under-use should look to redesign their spaces to revitalise the local community and attract new commercial leases.

One possible approach to achieve this aim is the conversion of commercial spaces into social spaces that provide benefits to the local community or existing building tenants.

To address the above issues, from 2022 to 2025, the University of Technology Sydney (UTS), funded by the City of Sydney, developed the Sustainable Temporary Adaptive Reuse (STAR) toolkit.

Moreover, the Royal Melbourne Institute of Technology (RMIT) recently carried out research into the adaptive reuse of under-used secondary-grade offices in Melbourne.

Adaptive reuse is called conversion in the UK market and covers a change of use, for example, office-to-residential conversion.

According to CBRE, these increases were mostly due to the delivery of new supply and old stock withdrawals being re-added to the market inventory. 

Recent data from Colliers shows that there is a higher leasing demand for premium quality office stock (i.e. Premium and A grade), thanks to the abundance of secondary-grade stock (B, C and D).

In 2025, restoration of heritage-listed skyscraper 33 Alfred Street, Sydney (32,353 m²) was completed with a commitment rate of 93%, highlighting strong leasing demand for well-positioned Premium offices.

However, Colliers note that office investment activity slowed during H1 of 2025, indicating that the market is still exercising caution.

During the past five years, the flight-to-quality trend has been clearly evidenced by cumulative negative net absorption of 258,982 m² in the secondary office market, contrasting with positive net absorption of 279,858 m² recorded in the premium office market over the same period. 

Furthermore, prime gross effective rent growth of 0.8% was concentrated in higher-quality, and not secondary-grade stock.

Initially, these changes to Sydney's office market began with the COVID-19 lockdowns, which required office staff to work from home. 

The changes stimulated the development of the STAR toolkit, which sought to explore short-term uses for vacant and under-used office space. 

Over a three-year period, UTS hosted workshops with stakeholders, including industry, property professionals, planners, certifiers, professional bodies (e.g. RICS, the Australian Property Institute and the Chartered Institute of Architectural Technologists), housing groups, architectural technologists, circular economy groups and government museums to scope and develop the toolkit. 

The STAR toolkit was created to be accessible to a wide range of decision-makers who are key to enabling its use, including:

• owners and investor organisations
• asset or facilities managers
• building designers
• end-user organisations
• space seekers, including events managers and trades that undertake adaptations
• policymakers in government who inform new sustainability and resilience guidance for existing building developments and communities
• regulators, such as town planners and elected officials on planning approval committees
• professionals involved in fire safety, liquor and gambling licensing, and construction code certification. 

An audit of Melbourne's CBD office market, conducted by Hassell and Ethos Urban in 2023 for the Property Council of Australia, identified 86 vacant or under-used secondary-grade office buildings built before 1990 – accounting for 6.5% of the total CBD office stock – as strong candidates for adaptive reuse, subject to individual feasibility studies. 

Vacant buildings lead to significant financial losses through lower rental income, declining property values and increased maintenance costs.

This raises an important question: what strategic actions should be considered for these secondary-grade office buildings to prevent both building and neighbourhood blight?

A team of researchers at the Royal Melbourne Institute of Technology (RMIT) looked to answer this question by examining the complexities of adaptive reuse of under-used secondary-grade offices in Melbourne. 

The study applied the PESTLE framework to systematically examine the political, economic, social, technological, legal, and environmental factors influencing the adaptive reuse potential of under-utilised secondary grade office stock in Melbourne's CBD.

A focus group discussion was conducted with 13 key stakeholders, including representatives from government, property development, the urban design sector, valuation firms, financial institutions and industry associations, to gather diverse insights, allowing for a thorough analysis of the economic and financial challenges and opportunities in the adaptive reuse process.

Economic considerations emerged as the primary determinant of project viability. Developers and valuers emphasised that they adopt a worst-case-scenario analysis in feasibility assessments due to the unpredictable challenges that may arise during adaptive reuse projects.

The success of these conversions largely depends on the anticipated market demand for new use, which must align with market trends to justify any additional investment. In an open market without fiscal incentives, traditional economic objectives will lead the adaptive reuse process.

The RMIT research project's findings revealed the limited suitability of secondary-grade offices for residential conversion. 

RMIT found that repurposing them for non-traditional commercial uses, e.g. coworking spaces, medical centres, educational institutions, data centres, retail storage facilities or innovative hospitality facilities, is often more financially viable than converting them into residential units. This point was recently backed up by research from JLL.

In general, non-residential commercial conversions of secondary-grade office buildings are favoured over residential conversions on account of their comparatively lower regulatory requirements, limited structural intervention, lower project risk, and shorter delivery timelines.

However, conducting detailed, use-specific feasibility analyses is imperative to systematically evaluate technical, regulatory, and financial viability, and to determine the most appropriate and sustainable alternative use for each building.

These regulations include assessment criteria originally designed for office use rather than other uses, creating barriers that restrict office-to-alternative-use conversions.

Heritage overlays frequently apply to pre-1990 buildings in many Australian CBDs, imposing constraints on structural modifications and facade alterations.

Heritage overlay is a planning control applied to land or buildings of cultural, historical or architectural significance, which requires property owners to seek council approval before making alterations, demolitions, or developments that could affect the heritage values of the site.

Additionally, compliance with the National Construction Code differs based on building use. This creates separate regulatory paths that can affect how feasible it is to convert office buildings for other uses. 

Contemporary regulatory frameworks extend beyond building code compliance to encompass sector-specific requirements that create additional layers of complexity for specialised adaptive reuses.

For example, healthcare conversions must meet Australian health facility guidelines, educational conversions are required to meet state education standards, data centres need telecommunications compliance, and warehouse conversions encounter additional challenges through Environmental Protection Authority requirements.

These sector-specific regulatory requirements, combined with local planning considerations, can prolong project timelines and significantly increase associated conversion costs.

Notably, best practice guidelines, such as the City of Melbourne's Guidelines for the adaptive reuse of office buildings, increasingly recognise the importance of adaptive reuse for sustainable development. However, challenges arise from rigid regulations. 

The planning approval process can create uncertainty for projects, as applications for conversions must go through public notification, objections and possible appeals to state tribunals.

This often leads to lengthy negotiations or requests for changes, complicating approvals and affecting the feasibility of these projects.

Among secondary-grade offices, B-grade buildings face the most challenging economic feasibility concerns compared with C- or D-grade offices, due to their complex design, difficulty in meeting ventilation and natural light requirements, complex re-zoning approvals and the need for stronger justifications for conversion.

The UTS STAR toolkit project in Sydney has developed a set of resources to help tenants present a case to owners' representatives for short-term use, with a view to creating new users and activities.

The RMIT Melbourne study, by contrast, examined the potential conversion of secondary-grade offices for residential use but found that current building codes and planning regulations limited viability.

Instead, the project found that other, non-traditional commercial uses were more viable and aligned with the STAR toolkit rationale. With the evolution of artificial intelligence, it may be time to revisit some of our building codes and embrace the next iteration of our CBDs.

In the future, artificial intelligence may be able to model how an existing building meets the minimum standards of building codes or regulations for alternate uses, thereby enabling faster decisions to be made about the viability of alternate uses.

These research projects show how existing building stock can evolve over time to suit new users and uses. RICS members, with this knowledge, can help facilitate the evolution of our city centres and CBDs to benefit owners, users and wider society.