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Re-Zoned Property: Non-Residential Building Conversions Gain in Significance

Demand for urban housing remains as high as ever. Given the strained situation on the residential property markets of major German cities, the conversion of properties is becoming increasingly important to meet the demand. This is the upshot of a survey conducted by the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) to analyse conversion projects and rezoning projects across Germany. While building land is in short supply more often than not, all sorts of vacant non-residential buildings are readily available for conversions into residential properties, either to be let or sold following redevelopment.

Property Conversions – an Up-and-Coming Trend

The BBSR survey documented more than 180 rezoning project for almost 12,800 residential units in Germany's major cities. The majority of these (7,500 residential units) are already completed, according to BBSR, while around 3,100 residential units are under development and another 2,100 in planning. The rezoning of non-residential property is a phenomenon particularly conspicuous in growth regions: They account for around 86 percent of the residential units either completed or undergoing conversion. Roughly one in three residential units belongs in the mid- to low-price segment, while the remaining two thirds belong in the high-end bracket of the housing market.

In Berlin alone, BBSR identified about 4,700 residential units in rezoned properties. Nearly 2,600 residential units have already been raised. This means that one in three flats in multi-dwelling units that were completed in the German capital between 2006 and 2011 was developed within the framework of a rezoning project. Other hot-spots for commercial-to-residential conversion projects in Germany include the metro areas of Cologne, Munich, Düsseldorf, Frankfurt am Main, and Hamburg. Here, the number of residential units subject to conversion ranges from 250 to 1,000, depending on the city.

Success Factors and Obstacles of Rezoning Projects

Structures potentially qualifying for rezoning as residential property include, without being limited to, office and industrial schemes, hospitals, and educational facilities. The original buildings are usually preserved, but in many cases supplemented by annexes or new buildings. The costs tend to be at least as high as they would be for an entirely new building. However, this is not necessarily a drawback for investors because the conversion of non-residential buildings normally permits a higher utilisation ratio for a given plot than a new building in the same location would afford after razing the old one. For historic developments were often denser than today's building code would tolerate. The shortened time to completion – in terms of both permit procedure and construction period – represents another advantage of such projects over all-new developments. One potential obstacle, though, is the owner's willingness to sell, according to BBSR. As often as not, even assets that have been vacant for extended periods of time are withheld from the market or offered at comparatively inflated prices.

All things considered, investing on conversion projects is a paying proposition, though, or so BBSR believes. Rezoning properties is thus a lucrative alternative to new developments while doing just as much to ease the strain on the housing market.