Ageing commercial buildings spur adaptive reuse

PETALING JAYA: Ageing and potentially obsolete commercial buildings, especially within Kuala Lumpur’s central business district (CBD), have become increasingly challenging assets for owners, developers and investors, prompting greater interest in adaptive reuse and redevelopment opportunities.

This is as the property market becomes more discerning about the quality, efficiency and relevance of existing office stock, said Zerin Properties chief executive officer Previn Singhe.

“With that said, I would distinguish between an ageing building and an obsolete building. Age alone does not determine whether an asset remains relevant.

“The real concern is whether the building can continue to meet changing occupier expectations and generate an acceptable return for its owner,” he told StarBiz.

Citing data from the National Property Information Centre, Previn said the overall occupancy of Kuala Lumpur’s purpose-built office buildings stood at 73.5% across both government and privately owned stock in the first quarter of this year.

This is against an existing supply of 110.04 million sq ft.

“Within the Kuala Lumpur City Centre, privately owned office buildings recorded an occupancy rate of 73.4%.

“This figure is against a further 8.35 million sq ft of incoming supply and another 5.89 million sq ft currently in the planning pipeline.

“This tells us that the market is not simply dealing with an overall shortage or surplus of office space.”

Previn said there is a growing divergence between buildings that remain competitive and those that are finding it harder to attract occupiers.

“As newer and more sophisticated buildings continue to enter the market, older assets will increasingly need to demonstrate a clear value proposition beyond simply offering lower rents.

“However, I would not interpret this statement as meaning that older buildings are automatically redundant.”

Previn believes that a well-located building that has been actively managed and continuously upgraded can remain “highly relevant”.

“The PETRONAS Twin Towers is a good example of this. Despite being nearly three decades old, it remains a highly sought-after corporate address because the asset has continued to evolve through active management, reinvestment and a strong overall proposition.

“The lesson is that age is not necessarily the problem – obsolescence is.

“The challenge arises when the cost of keeping an ageing building competitive begins to outweigh the returns that the existing use can generate.”

Here, Previn believes that owners need to look beyond simply refurbishing the office and consider whether repositioning, adaptive reuse or redevelopment may create better value.

“This is where adaptive reuse is becoming more relevant.

“I would not say it is the answer for every ageing building, but it is increasingly becoming a legitimate asset management option, particularly where the building has a strong location and underlying value, but the existing office use is no longer the highest and best use.

“The objective is not simply to preserve an ageing building but to determine whether it can have a commercially viable second life.”

JLL Malaysia managing director Jamie Tan meanwhile noted that businesses today are looking for better-quality office buildings, more efficient floor plates, modern building systems, digital infrastructure and stronger sustainability credentials.

“We call this trend a ‘flight to quality’. As tenants move towards newer buildings, some older buildings find it increasingly difficult to attract replacement tenants.

“At that point, vacancy becomes more structural rather than simply part of the normal property cycle. We can see this reflected in the CBD.”

An important question to ask is which option creates the best economic value and long-term use for that particular building, said Tan.

“There is also a broader city issue here. Kuala Lumpur cannot continue to have a situation where parts of the CBD are underutilised while we continue to build new development elsewhere.

“The city’s existing infrastructure, public transport and amenities are already there.

“The opportunity is to put some of the existing stranded assets back to productive use.”

The situation is also no different down south in Johor, said Olive Tree Property Consultants founder and chief executive officer Samuel Tan.

“With office vacancies climbing, Johor Baru owners are looking at creative ways to turn ageing towers into tomorrow’s hotspots.

“Thanks to new national tax incentives, transforming these buildings is suddenly making a lot of financial sense.”

Samuel said that there is already a surplus of office space within the Johor Baru CBD – leaving many older, purpose-built towers sitting half-empty.

“While premium, transit-linked buildings are thriving, older structures are falling behind. The real estate market is increasingly looking toward a creative solution – adaptive reuse.

“This is not just a temporary dip. It is a structural shift.

“Currently, office occupancy in Johor Baru hovers around 55%, significantly lower than the Klang Valley’s already stressed 78.4% for non-prime purpose-built offices.

“Supply is simply outpacing demand,” said Samuel.

Repurposing older buildings When determining the best way forward for ageing and potentially obsolete commercial buildings, JLL Malaysia’s Tan said there are four key factors that need to be considered.

“The factors I would consider are, namely, the physical characteristics of the building, its location, the zoning and planning provision, and finally the financial feasibility.

“These four factors should determine what use makes the most sense.”

Tan said a building with a deep floor plate, limited natural light, insufficient parking or significant structural and building services constraints may not be suitable for conventional residential conversion.

“On the other hand, an older building with a narrower floor plate and better natural ventilation may lend itself much better to residential or shared living.

“The key is that we should assess the building rather than assume that every vacant office can be converted into the same product.

”Location is equally important, he added.“

If the building is close to public transport, employment, shops and other amenities, residential or shared living could make sense.

In another location, the stronger demand may be for other uses, including healthcare, education, childcare, community facilities or even a repositioned commercial use.

“Meanwhile, zoning and planning provision also determine what is realistically possible, because the most commercially attractive use is not necessarily the use that the planning framework allows or encourages.”

Moreover, “the financial numbers” also have to work, Tan said.

“We need to look at the cost of conversion against the value and income that the new use can generate.

There is no point converting a building into a particular use if the economics don’t work.

“I would see a range of possibilities such as conventional residential, shared or microliving, education, healthcare, childcare, community uses, or repositioned commercial space, and in some cases, a combination of those uses.”

Tan pointed out that sometimes, a mixed-use outcome may be more commercially viable and sustainable than a purely residential conversion.

“I would also be cautious about adding excessive serviced apartment stock into the city without a thorough feasibility study.”

He noted that Kuala Lumpur already has a significant supply of serviced apartments.“

Therefore, adaptive reuse should not become a way of creating more supply in a segment that is already facing some overhang.

“At the end of the day, the objective should not be to maximise the number of buildings converted but to put the right buildings with the right uses to support the overall urban revitalisation.”

Previn believes that every building should be evaluated according to its highest and best use, rather than the purpose for which it was originally designed.

“There is no single alternative use that will work across the board, as the right outcome will depend on the building’s location, physical characteristics, infrastructure, planning requirements and market demand.

“The key is to identify what the asset can realistically support and whether that use can create sustainable commercial value.”

He agrees that hotels and serviced apartments can be viable, particularly in established commercial, tourism and well-connected locations.

“We have already seen a number of older office buildings successfully transition into hospitality uses.

The former Wisma Peladang, for example, was converted into the Piccolo Hotel before subsequently being rebranded as ANSA Kuala Lumpur.

Wisma KFC was transformed into the Hyatt Centric City Centre Kuala Lumpur, Menara ING was repurposed into the Holiday Inn Express, while Wisma KLIH became WOLO Kuala Lumpur.

“We are also seeing this approach continue, with Wisma Malaysian Investment Development Authority (Mida) being repurposed into a mixed-use development incorporating the YOTEL hotel and medical centre.”

Previn added that residential conversion is another option that could become increasingly relevant, particularly where there is strong residential demand and the building can be physically and economically adapted for residential use.

“However, this is not simply a matter of changing the building’s use.

“Floor plate configuration, natural light and ventilation, plumbing, parking, access and regulatory requirements can significantly affect whether a conversion is viable.“

The economics also need to be considered against the cost of refurbishment and the value that can ultimately be achieved from the converted asset.

”For larger or strategically located buildings, Previn believes that a mixed-use approach could potentially offer the greatest flexibility.

“Combining uses such as hospitality, residential, office, retail, wellness, co-working and flexible space can create a complementary ecosystem within the same asset, allowing it to respond to different sources of demand rather than relying entirely on a single use.

“In some cases, a partial conversion may also be more practical than converting the entire building.

”Beyond these more conventional options, Previn also sees potential for healthcare, wellness, education and training, senior living and innovation-related uses where the location, building characteristics and market demand support them.“

These are not necessarily suitable for every building, but they broaden the opportunity set beyond simply converting offices into residential or hospitality uses.

“As we have seen with the Wisma Mida example, combining different uses can also create a more diversified proposition where the asset can support it.”

Previn said that ultimately, successful repurposing is not simply about “changing the use of a building”.

“It is about identifying the highest and best use that is compatible with the asset’s physical characteristics and location, supported by genuine market demand, and capable of creating sustainable commercial value.”