18 November, 2020

Repurposing real estate is adding value to obsolete properties by means of adaptive reuse. It is not a new concept; occupiers have been adapting to advances in technology and changing consumer behaviour whilst navigating economic & political uncertainty since long before COVID-19. However, the pandemic continues to have an unprecedented impact across EMEA and the globe. This perfect storm will no doubt have accelerated strategic CRE focus with decision making on real estate more critical than ever.


Why Repurpose?

The majority of commercial premises will be vacant at one point or another, this can be through changes in manufacturing footprint, reduction in office space and ongoing challenges within the retail sector. We anticipate that the current economic climate will fast-track the proportion of properties that require a degree of repurposing. Whilst there are challenges to repurposing vacant buildings there are also many benefits. They can spur economic redevelopment for local communities and often a considerably greener option than new construction.

Understanding the alternate use value of owned real estate is a powerful tool to potentially unlock future value and future proof businesses. At a time when debt markets are more constrained, corporate real estate sales are likely to remain active as corporates seek out new sources of capital and what they need from their future real estate portfolios.


Opportunities for repurposing

In the UK we are seeing opportunities to repurpose. Only recently John Lewis revealed plans to turn unwanted department stores and Waitrose Supermarkets into blocks of flats, with Dame Sharon White saying, “As we repurpose and potentially reduce our shop estate, we want to put our excess space to good social use.” Boris Johnston in his ‘Build, Build, Build’ slogan has relaxed planning rules to make it easier for land and buildings to be converted quickly, with the ability to change vacant shops to homes, and to demolish vacant shops and build homes in their place, without planning permission. These changes came into effect on the 1 September 2020.

There isn’t necessarily a generic blueprint for repurposing assets, primarily the market will dictate. At present residential, co-working, industrial amongst others are creating a more viable option. 

 Examples of repurposing;

  • A former Honda dealership in Liverpool which was surplus to operational requirements was repurposed to a gym operator, which demonstrates even the most bespoke of properties can be successful with a viable alternative use.
  • The sector that is arguably facing the greatest impact from COVID-19 is retail. Recently, CBRE have advised AM Alpha, the landlord of the Debenhams department store in Manchester, on reshaping this iconic building into a shopping arcade, offices and leisure facilities bringing life back to this Grade II listed building.


A CRE focussed strategy

For corporates who own their own real estate the challenge lies with the real estate being intrinsically linked to the business operations which can often be bespoke. The CRE held on a balance sheet is likely to be forensically scrutinised with a number of properties suffering from functional and economic obsolescence. Once vacant or surplus to operational requirements properties can present a challenge. Repurposing can be a means of creating opportunity from obsolete real estate.

As a valuer specialising in CRE we are often instructed to run alternative use value across a range of property types and geographies. We are able to navigate this uncertainty and believe that understanding the alternative use value of an individual asset or property portfolio is logically best practice. We will holistically review an asset or property portfolio to advise on and examine opportunities for maximising value.

Stages for valuation;

  1. Identity and undertake asset/portfolio review
    Provide an overview identifying asset(s) where repurposing is a potential option…

  2. Implementation of repurposing options
    Where there is an identifiable opportunity we utilise the depth of CBRE expertise to explore further…

  3. Alternative Use valuation report
    Deliver a focussed valuation report…
 


Conclusion

For the changing landscape of commercial real estate understanding opportunities and challenging traditional thinking on uses and users can make once obsolete properties functional and productive. 

To learn more about repurposing for corporate real estate and how occupiers are creating opportunities to add value and how this impacts value please do get in touch with me.

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