As the pandemic expanded into a global phenomenon two years ago, its impact was felt around the world, and the property market in South Africa was no exception. Although the trend of converting empty office buildings into residential spaces in South Africa existed before the outbreak of the COVID-19 virus, with closures forcing offices to close, this trend has accelerated considerably.
The rise in residential conversions could not have come at a more opportune time, not just because of the increase in remote working, but because of a backlog in social housing. The South African government has jumped on the public-private conversion bandwagon by offering grant financing of up to 70% for eligible social housing projects, in line with newly defined service level agreements between developers and social housing agencies. Additionally, South African banks have followed suit with similar measures. Although residential conversions have not seemed like a solid investment in the past, many banks are now willing to provide additional financing for similar projects.
In South Africa, prices for vacant office buildings are lower than they have ever been, so the costs of converting these spaces are significantly lower than those of building a new multi-family unit in from scratch (especially in terms of utility infrastructure). But besides the enticing cost savings, these vacant office buildings are geographically favorable, as they are right in the heart of high-density urban areas within walking distance of public transport.
As office-to-residential conversions take off in the region, the sustainability of the trend is in question. As businesses clamor to reopen, some of these vacant buildings could be reclaimed for office purposes. It seems that the endurance of the conversion trend depends on how permanent hybrid work schedules turn out to be. If the future of work truly involves less time in the office, then more businesses will rely on coworking and flexible offices, reducing demand for office space from pre-pandemic levels. Still, if the hybrid work model turns out to be nothing more than a temporary carrot and companies revert to the traditional 5-day workweek in the office, that desperately needed affordable housing opportunity could be of short duration.