Commercial landlords would shudder to think their office portfolios might never again deliver their healthy pre-pandemic returns, while hotel owners bemoan the prospect of empty rooms, longer term. Yet as a recent Knight Frank report points out, Covid-19-induced lockdowns have exposed the weaknesses of some income-producing properties around the world. In the two-tiered market that has formed, more resilient prime assets continue to hold their value, while non-prime assets have seen values deteriorate. “As a result, we are witnessing massive moves to repurpose assets and bring them to relevance in the evolving landscape across the region,” notes Knight Frank’s researchers. In what it terms as “the great asset repurposing of the decade”, the global property consultancy finds there are significant advantages in moving towards asset repurposing, as opposed to redevelopment. Particularly in the case of older buildings, the potential to transform under-utilised spaces into “new economy assets” – such as data centres, health care facilities, housing and co-working spaces – is a chance for investors and developers to meet evolving needs. Is Blackpink’s dorm worth more than Buckingham Palace? 7 celeb home prices ranked Christine Li, Knight Frank’s head of research, Asia-Pacific, notes that this trend is already apparent in the region’s hospitality sector, which is heavily reliant on Chinese tourists. “ Hotels naturally took the hit with occupancies across the region averaging between 20-30 per cent throughout 2020, leading to significant declines averaging more than 50 per cent in revenue per available room (RevPAR) for most major hotels in Asia-Pacific,” she said. With no end in sight to border restrictions, Li says investors have been actively expanding their portfolios in particularly hard-hit Hong Kong by acquiring hotels or old residential buildings and converting them into co-living units or serviced apartments – sectors which have proved resilient amid the pandemic . “A recent example is Weave Living’s plan to convert an old hotel in To Kwa Wan into co-living units, making it the fourth addition to its set of co-living studios in Hong Kong,” she said. Oootopia, owned by Hong Kong-based Arch Capital, has converted three three-star hotels into co-living and serviced residences, while applications for conversion of two hotels – the Horizon Suite Hotel in Ma On Shan and the Novotel Nathan Road Kowloon – to residential uses have been approved by the city’s Town Planning Board. Budget hotels or guest houses are targeted for conversion as minimal alterations are required, Li adds: “This explains why some cash-rich operators have continued to acquire assets and expand their footprint in the city at a time when the Hong Kong property market has been through a period of repricing due to muted rental performance.” The “unique opportunity” the pandemic has created for turning hotels into housing also meets a social need, Li added. “Given Hong Kong’s chronic housing shortage, prohibitively expensive prices and high rent-to-income ratio, the conversion of hotels into housing would help offer more affordable, approachable and flexible living options especially to the younger generations,” she said. The conversion of hotels into housing would help offer more affordable, approachable and flexible living options especially to the younger generations – Christine Li, Knight Frank’s head of research, Asia-Pacific Sometimes, adaptive reuse to purposes other than housing makes more commercial sense. One example cited in Knight Frank’s report is the JC Mandarin Plaza in Shanghai’s conversion from a poorly operating hotel into a high-end commercial complex, to fill a gap in supply in the CBD, part of a larger urban renewal effort initiated by the Shanghai government. Design firm Gensler was involved in the transformation of one of the city’s oldest luxury hotels to a grade A office building with a retail podium, successfully attracting premium tenants. 10 of the most expensive celebrity homes sold in 2021, from Bieber to Madonna Another case study is that of Shanghai Chlor-Alkali Chemical Co. Ltd, whose Minhang district factory dormitory had been idle for two years. Its conversion into 323 residential units with a shared communal area gave new life to a redundant building complex, while meeting the accommodation needs of new employees in higher-value enterprises in the district. Steven Paynter, principal at Gensler, says the shift to more modern, amenity-rich and sustainable class A office buildings was happening even before the pandemic. “Initially, the choices for landlords in a market with a glut of office space were to renovate and retool buildings with refreshed amenity spaces,” he said. “Now, in a post-pandemic and hybrid work economy , tenants’ priorities have changed, and many are demanding a unique office experience that cannot be accommodated in the ageing office stock.” In that case, residential conversion may be a viable option. To assist owners in evaluating the conversion potential of underperforming buildings, Gensler partnered with a real estate working group in Calgary, Canada, to develop an evaluation criteria and cost model. It uses a scorecard method to assess “all the factors that make for a good residential building – floor plate depth, ceiling height, number of lifts, neighbourhood context and access to transit”, said Paynter. “Our scoring system quickly identifies these characteristics and determines how a building conversion will perform,” he added. “This is relevant to all buildings, regardless of location, because the bones of most buildings are roughly the same. When we localise our system we change a few key elements, such as the desired size of residential suites. We used an average of 645 sq ft in Calgary, 559 sq ft in Toronto, and we’d like to use the city average of 516 sq ft for Hong Kong. This would mean that we’d be looking for lower-grade office buildings with narrow floors.” Gensler’s research suggests that around 30 per cent of office buildings in most cities studied are suitable for conversion to residential uses, although this depends on the average unit size for a particular location. In Hong Kong or other very dense cities, we would expect 25 to 30 per cent of older office buildings to be good candidates [for conversion to residential units] Steven Paynter, principal at Gensler “This would mean that in Hong Kong or other very dense cities, we would expect 25 to 30 per cent of older office buildings to be good candidates,” he says. “Hong Kong’s office vacancy is currently about nine per cent, or 8 million sq ft, so converting 25 to 30 per cent of this could be used to create about 3,200 new homes for about 6,000 people. In one of the most expensive cities in the world, this could help alleviate some of the housing issues and create a good ROI (return on investment) for landlords who have seen office prices continue to slump.” The luxury London mansions of India’s richest Paynter also believes that Hong Kong would make a very interesting market for conversions because it is “already a very dense, mixed-use and walkable” city. “Most of the office buildings have smaller floor plates, which is a benefit, and it also has a lot of building stock of about the right age for conversion – around 40-50 years old,” he says. “These buildings are due for large-scale overhauls, so converting them makes a lot of sense.” Case study Knight Frank’s “Asia Pacific: Repurposing on the Radar – 2021” report cites the example of the 2020 conversion of a 385,215 sq ft office building in the Golden Triangle area of Kuala Lumpur, Malaysia, into co-living and co-working spaces. The ageing building (formerly known as Menara HLA) was down to 34 per cent occupancy when owner Hong Leong Group, together with the Malaysian Digital Economy Corporation, decided to pivot the business model to meet an emerging market need. Today, the renamed Menara HLX is a one-stop centre connecting the corporate and start-up community. In addition to co-living and co-working spaces, the building also incorporates an electronic gaming academy, a data centre, innovation labs, event space and F&B outlets. Want more stories like this? Follow STYLE on Facebook , Instagram , YouTube and Twitter .