Page 112 - Beyond Decommissioning

Relevant factors for redevelopment 93

prices will drive property investors to improve the energy efficiency of buildings so
that they can maintain market demand and rental growth.
Over the last 50 years, the significant growth in the construction of new buildings
has produced a large stock of buildings eligible for refurbishment and reuse. However,
many of these buildings were constructed without complying with environmental per-
formance codes and thus are not as “environmentally” efficient as new buildings.
Adaptive reuse is seen as an alternative way to address this “environmental gap”
by functionally improving a building’s performance while simultaneously reducing
its environmental loading (Bullen and Love, 2011).
Rents tend to be higher in adapted buildings. Whether occupiers are prepared to
offset higher rentals would be dependent on a cost-benefit analysis of rents and
reduced energy bills over the rent period. However, the cost of upgrades needs to
be balanced against current rent levels because tenants would be hesitant to pay above
market rates just because a building is more energy efficient (Bullen and Love, 2011).
But, as discussed elsewhere, other factors (e.g., prestige, historical value, location,
etc.) will enter the equation.
The use of older properties can enable companies with limited financial resources
to rent offices or apartments whereas normally they would only have the choice of
newer buildings at much higher rents. Older buildings may offer reduced amenities
and services, but they are an affordable resource that can be exploited by new busi-
nesses or less profitable organizations. Commercial success by these organizations
may in the longer term generate opportunities for them to either upgrade their build-
ings through adaptive reuse or relocate to costlier areas (Bullen and Love, 2011). See
postindustrial living in Milan in Section 6.2.2.1.
In general, governmental institutions should strive to set in motion an adaptive
reuse strategy because of their large property stocks. With a large housing portfolio
public institutions can and should develop nation-wide plans and adopt strategies to
identify the buildings that are more suitable for adaptive reuse. Governmental insti-
tutions can also sponsor redevelopment, especially of heritage buildings, through
financial incentives.
The lack of incentives can result in investors’ loss of interest in adaptive reuse. This
plight is often exacerbated by the inconsistent application of local requirements. Gov-
ernments need to launch policy initiatives that encourage hesitant developers to invest
in adaptive reuse (Bullen and Love, 2011). There is a school of thought, however, that
maintains that adaptive reuse can be profitable per se and appealing to private inves-
tors, even without the need for public incentives (Economist, 2005).
The commercial risk inherent to adaptive reuse is another critical point. Many con-
tractors are reluctant to renovate old buildings because of the (perceived or real) risk
that lengthy or difficult renovation works may decrease or zero the profits. Often rais-
ing finance for adaptive reuse projects is difficult for private investors due to (often
undefinable) risks including unusual work, scope changes, incompatibility of mate-
rials, incomplete or inadequate information resulting in unknowns, health and safety,
design constraints, and interference by occupants. Furthermore, the discovery of latent
problems, defects, or dimensional and material discrepancies during reuse work may
compromise the adaptive reuse.