Transformation properties are gaining in importance. New uses create a modern profile and boost the value of buildings. That has economic benefits and reduces resource consumption. By Christine Mattauch
It is all about taking a whole new direction. As Sebastian Wasser says: “We look for assets with good building fabric in good locations. They need to offer clear potential for value growth.”
And that is precisely what the managing director of Ehret + Klein Capital Markets saw when he viewed a former hotel building in Berlin as a prospective buyer. The 18,000 square metre property dating from 1914 is located in the popular Mediaspree creative district and features an attractive brick façade and high ceilings. After purchasing the property in October 2022, the Starnberg-based investment company converted it into a multi-tenant office building under the brand The Loom, with stylish lofts and modern technology. Wasser believes that the location, sustainable use concept and ESG compliance make this property resilient: “There will always be strong demand for this combination.”
Transformation is worth it – for economic reasons, for the environment and for the urban landscape.
New, compelling use concepts are required
Large-scale conversions – a relatively new field of activity for investors – are becoming more popular and attractive. In a difficult market characterised by inflation and uncertainty, converting buildings could open up opportunities, according to the Transformation Properties 2022 study conducted by Union Investment and bulwiengesa. A prerequisite is a compelling use concept. “Transformation is worth it – for economic reasons, for the environment and for the urban landscape,” says Henrike Waldburg, Head of Investment Management Global at Union Investment.
It is not just about improving the energy efficiency of buildings, but about applying a wider understanding of sustainability. Henrike Waldburg: “There is already a huge amount of potential in existing stock in terms of primary energy, and we should leverage that.” Especially since resource consumption is increasingly becoming a benchmark in due diligence – the Society of Property Researchers (gif) has just published the first CO2 document covering the lifecycle assessment of buildings.
Transformation is much more than modernisation on a smaller scale
Higher sustainability requirements, shortages of raw materials and rising construction costs are all reasons to choose transformation over demolition followed by a new build, according to the 200 industry experts surveyed for the study. But not every modernisation is a transformation: it is defined as a “significant change” to the building or usage structure involving at least 30 percent of the gross floor area. Projects range from individual properties to entire neighbourhoods. Mixed-use developments often replace traditional monostructures.
In historical locations in particular, transformation also offers opportunities to create added value through the addition of space, as at the former AEG transformer factory in Berlin. Here, self-supporting steel structures will significantly extend the space available for offices, studios, co-working and eating areas in the heritage-protected halls. An example of “light” transformation is the LOVT (formerly MediaWorks) industrial complex in Munich, a joint venture between Union Investment and Hines. Here, more than 15,000 square metres of additional space is being created through a combination of reconfiguration and adding new storeys.
Currently, some of the most popular transformation properties are hotels that suffered during the pandemic. For example, the new owners of the Sheraton Berlin Grand Hotel Esplanade, Deutsche Finance International and Cells Group, are intending to convert part of the building into offices. It works the other way round, too: upscale hotel Ruby Luna in Düsseldorf, which opened in May 2021, is located in a former Commerzbank office tower.
In historical locations in particular, transformation also offers opportunities to create added value through the addition of space, as at the former AEG transformer factory in Berlin. Here, self-supporting steel structures will significantly extend the space available for offices, studios, co-working and eating areas in the heritage-protected halls. An example of “light” transformation is the LOVT (formerly MediaWorks) industrial complex in Munich, a joint venture between Union Investment and Hines. Here, more than 15,000 square metres of additional space is being created through a combination of reconfiguration and adding new storeys.
Currently, some of the most popular transformation properties are hotels that suffered during the pandemic. For example, the new owners of the Sheraton Berlin Grand Hotel Esplanade, Deutsche Finance International and Cells Group, are intending to convert part of the building into offices. It works the other way round, too: upscale hotel Ruby Luna in Düsseldorf, which opened in May 2021, is located in a former Commerzbank office tower.
Real estate investors want more flexible regulations
In many city centres, there is a clear need to transform department stores and shopping malls that have outlived their original purpose. One example can be found in Nürtingen, where the long-established Kaufhaus Hauber department store in the Nanz Center closed in 2018. It is now being refurbished and transformed into a neighbourhood centre with grocery retailers and modern healthcare facilities. Union Investment purchased the property in December. In Munich, meanwhile, Ehret + Klein Capital Markets plans to reposition the recently acquired Daseinstein shopping centre with a focus on lifestyle and local amenities. “We’re aiming to take the property in a completely new direction,” says managing director Wasser.
In its 2022 spring report, the German Property Federation (ZIA) called for regulations to become more flexible in order to make conversion easier: “New concepts and ideas should not be stymied by existing laws and regulations.” Respondents in the Union Investment/bulwiengesa transformation study want exemption from restrictions, authorisation for greater use of space, and support across agencies and departments at local authority level. In return, they are prepared to make more than the minimum investment, e.g. by adding green roofs, creating high-quality exterior areas and using recycled building materials. Sixty percent could also imagine offering charitable and cultural organisations a reduced rent. After all, sustainability also has a social dimension.
By Christine Mattauch