ROTTERDAM’S TRANSFORMATION POTENTIAL TRANSFORMING STRUCTURAL VACANT OFFICE SPACE INTO HOUSING COLOPHON P5 Research Report Title Rotterdam’s transformation potential Transforming vacant office space into housing Lab Adaptive Reuse Date Report 26-09-2018 Date Presentation 03-10-2018 STUDENT Name R.A. de Ridder Student number 4433394 Address Amethiststraat 34B 3051VD, Rotterdam Phone +31 6 5722 3090 E-Mail [email protected] UNIVERSITY Institute Delft University of Technology Master Track Management of the Built Environment Address Julianalaan 132 – 134 2628BL, Delft Phone +31 1 5278 5159 Website www.tudelft.nl/bk/over-faculteit/afdelingen/management-in-the-built- environment/ GRADUATION MENTORS First Mentor Hilde Remøy Second Mentor Ilir Nase External Examiner Wido Quist Image title page http://www.stadsmuziek.nl TRANSFORMATION POTENTIAL Preface This report presents my graduation thesis towards the transformation potential of Rotterdam’s vacant office space into housing. This master thesis is the final assignment for the master track Management in the Built Environment at the Delft University of Technology. R.A. de Ridder Rotterdam, 2018 3 Executive Summary This research aims to uncover the transformation potential of the structural vacant office space in Rotterdam to residential space. The office market in the Netherlands has become a replacement market. The result of this replacement market is that users can choose to rent the highest quality offices at the best locations due to the surplus of space. Of all major cities, the city of Rotterdam is coping with the highest vacancy rates. In this city 18,7% of its total office stock was recorded as vacant on January 1st, 2017 (PBL, 2017). Not all vacancy is considered to be a problem. Within the real estate literature, a distinction is made between initial and friction vacancy (vacancy less than one year), long- term vacancy (vacancy between one and three years) and structural vacancy (vacancy more than three years) (Buitelaar et. al, 2013). For the office market to function optimally about 4 to 6% should remain frictionally vacant (Zuidema, 2010). Of these three vacancy categories, structural vacancy has increased considerably in recent years to 65% on January 1st, 2017. This is a problematic development. Structural vacancy is problematic because these objects will not be taken up by a rising economy (Remoy, 2014). In other words, without some sort of intervention these buildings will remain vacant with all its associated financial and social consequences. This quantitative and qualitative mismatch results in an increase of structural vacancy at the bottom end of the market. This mismatch of demand and supply is not just an issue within the Dutch office market but also for the housing market. The difference between the two markets however is that the office market is coping with an oversupply and the housing market with a shortage, especially in the Randstad area where space is scarce. This increasing demand is caused by the migration to the cities, households becoming smaller, and insufficient building production in recent years (NOS, 2017). These signs of an overheating housing market are also showing in the city of Rotterdam which is also located within the Randstad. Here prices have risen significantly and, on some locations in the city, have already surpassed those of before the economic crisis in 2008 (NVM, 2018). There are several intervention strategies to cope with office vacancy. The options are selling, consolidation, renovation, demolition and build new, or transformation. However, by just selling the object the problem is not solved. The same goes for consolidation, as mentioned before, waiting for a rising economy will not be a solution. By renovating the building, the quality is improved of the original office function, however this function is most likely no longer desired on its location since it is structurally vacant. Function change is the most viable solution and can be obtained by either demolition and new build or transformation. Using this intervention method structural office vacancy may be reduced, and supply is added to its overheating housing market. However not all buildings are suitable for transformation. This is related to several influencing factors related to market-, location-, and building characteristics. The Rotterdam office market may offer possibilities to reduce structural vacancy by way of transformation due to possible favorable characteristics. Many tools have been developed aiming to incorporate these factors. To test this transformation potential of Rotterdam’s structural vacant office space with an improved assessment tool which combines among others the aforementioned influencing factors the following main question is posed: In what way and to what extent can current transformation tools measure Rotterdam’s transformation potential of structural vacant office space towards housing? After analyzing a variety of transformation tools, the tool that has proven to be best suited to assess Rotterdam structural office vacancy for its transformation potential towards housing is an adapted version of the Conversion Meter 2017 from Geraerdts et. al (2017), the Conversion Meter Rotterdam 2018. This tool made it possible to assign a score to the market, location and building characteristics. The transformation potential could then be ranked and given a classification. With the use of this tool also a first financial feasibility study can be made. TRANSFORMATION POTENTIAL The adaptations made to the original tool are not necessarily on the structure of the tool. The systematic step-by-step approach from broad to detailed remained the same. The content of each step was altered. In some steps more than others. The biggest adaptation was separating the feasibility scan of location and building. In the original tool this was done in one single step. The location however is of more importance to the success of transformation projects compared to the building. A transformation project with a good location and a bad building can still become a successful project. However, a bad location with a good building will most likely result in a bad project. Steps of the Conversion Meter Rotterdam 2018 To test and rank Rotterdam’s vacant office space, first an inventory was made of all vacant office space. Using various publicly available sources a database was made listing all vacant office buildings in Rotterdam with location and building characteristics needed to assess its transformation potential using the Conversion Meter Rotterdam 2018. This is the input for step 0. In Rotterdam 376 buildings were recorded as (partly) vacant. Of these 376 buildings, 142 were recorded as frictional vacant, 172 long term vacant and 62 as structural vacant. Only the 62 structural vacant office buildings were tested for their transformation potential since the use for office space here is redundant. After running all 62 buildings through all 5 steps, 38 building could potentially be transformed successfully into housing. Six buildings received a classification of excellent transformation potential, 32 are considered to have high transformation potential and 24 have no transformation potential. 5 These high and excellent potentials are located in or close to the city center as experts had already claimed. However, 17 of the “no potentials” were located in the city center. This favorable location for transformation has been made unfavorable by municipal policy. These 17 centrally located offices are in the middle of designated office areas. Upgrading of this office space is a better solution for this structural vacancy, because a change in zoning plan is most likely to be denied. Apart from half the office space being located near the city center there are more aspects for transformations to be successful. With considering these other aspects it is said that 50% is suitable for transformation. Looking at number of structural vacant buildings in Rotterdam, 33 out of 62, this is confirmed by the empirical outcome. However, if this is calculated using floor space, the 50% is not reached. The total floor space of all structural vacant offices combined amounts to 619.621m2. The floor space that is suitable for transformation after quantitatively and qualitatively testing amounts 218.091m2. This is 35.2%. This is caused by the large office buildings located in the office district. These buildings are located in designated office areas and are therefore to remain offices. When all 62 structural vacant office would be transformed into residential units, using the average size of the most common housing type of the specific neighborhood this office building is located in, then 4.774 residential units could potentially be added to the Rotterdam stock. However, since 24 of these 62 buildings have no transformation potential, the potential residential units from these buildings will be excluded. The 38 remaining office buildings may be transformed into 1.706 residential units. Of the 50.000 needed these 1.700 is only 3.4% of the total needed residential units by 2030. In essence the Conversion Meter 2017 is a yes and no checklist combined with a first cost-benefit analysis. The set veto and gradual criteria used to assess the buildings come from years of tool development using scientific research. By going through all the steps, it lets the user think about all aspects that need to be considered when initiating a transformation project. The simplicity of the tool, which is the step by step approach from broad to detailed and the required input, is what gives it its strength. The relevance and usability of the research was evaluated and confirmed by experts. Experts selected to evaluate the adapted tool and its results were professional real estate developers specialized in transformation projects. The evaluation gave input the further adapt the Conversion Meter Rotterdam 2018. After this second adaptation of the tool, the entire Rotterdam office vacancy portfolio was put through all the steps again. After this second run only 13 buildings were classified as excellent (2) and high (11) potential.