Office to Industrial Conversion Trends – What to do with under-utilised office buildings

Sometimes things happen that would’ve seemed impossible just a few years ago. The current price movements in the commercial and industrial property market – both in Cape Town and around the world – are a case in point.

Demand for industrial real estate has skyrocketed around the world, with warehousing and distribution facilities now driving demand rather than corporate office suites.

The good news in office rentals is that occupancy has been on the rise, but it’s going to take time to get back to normal. As a result, some experts are predicting that many office buildings will be converted into industrial parks in the near future.

In reality though, repurposing commercial space into industrial warehousing is an innovative idea that is easier said than done. In this article we explore the current trend for industrial property and take a look at some reasons why office space may be here to stay.

Why industrial space is hot property today

The massive transformation that has taken place in the commercial property market over the past few years has been extraordinary, but how did it come about?

  • Since the pandemic began, the global supply chain went from shaky to downright broken. 
  • With ongoing lockdowns in China, the work from home revolution, and the war in Ukraine, the way people live and shop has changed forever.
  • Many companies are operating a hybrid work model with consumers choosing to order online for delivery to their homes. As a result, the commercial spaces that used to house sprawling offices and bustling shopping malls may need to be repurposed – especially in the B and C  grade categories.

In theory, repurposing unused commercial space as warehouses and logistics depots makes good business sense, especially with the huge demand for order fulfilment facilities in this digital economy. Nonetheless, there are several good reasons why this may not always be practical – especially in Cape Town.

Building a warehouse is harder than it sounds

One of the major challenges that commercial property investors will have when trying to convert a commercial building into an industrial site arises from the fact that these two types of property are fundamentally different.

  • Industrial properties require a large land area surrounding their buildings. This allows goods to be loaded and offloaded using forklifts and other large equipment. 
  • In contrast, a typical commercial office building is surrounded by just enough land for a small to medium size parking lot. Many buildings in the CBD have underground parking which means that the total ground area of the building is not much bigger than the structure itself. 
  • Commercial areas tend to be congested. Narrow roads, cars parked in the street, and the high volume of pedestrian traffic make these areas unsuitable for industrial activities which involve the use of large vehicles and frequent traffic disruptions. 
  • Fewer candidate buildings for transformation. Prior to the pandemic, Cape Town underwent a large-scale rejuvenation in which many older commercial buildings were renovated to create office space for SMEs and corporates. 
  • Zoning issues. Renovating a large building can only be done once re-zoning permission has been obtained. Local municipalities are usually reluctant to allow industrial buildings in the vicinity of offices and homes, making this type of conversion cumbersome for developers. 

In many cases the owners of Cape Town commercial buildings have not yet recouped the cost of their initial investment and will be reluctant to transform the building yet again, given the large swings in commercial property market trends in recent years.

Office to Industrial or Mixed Use Conversion?

Given the practical difficulties involved in converting commercial buildings into industrial hubs, developers are exploring the possibility of creating residential or mixed use development buildings instead.

This type of development has been very successful in the mother city in recent decades, with many well-known mixed-use developments in the CBD and Century City as well as the southern suburbs already attracting eager buyers and tenants.

A mixed-use building is also ideal for employees who work from home or come into the office several days a week, with some business owners choosing to live in the same building where their business is based.

Overall, given the economics of Cape Town’s property market and the practical hurdles involved in commercial-to-industrial conversions, commercial properties in the city will either remain as is or will undergo a conversion to mixed-use residential buildings. 

Whatever the future brings, there will always be a strong demand for premium commercial space in the Mother City. 

If you’re looking for a stylish modern building for your enterprise, no matter what size it currently is, our area specialists would love to help. Contact the Commercial Space team today.