Veriu Group has expanded its presence to the Australian Capital Territory with the opening of Punthill Tuggeranong – the first in a series of office-to-hotel conversions to come from the group.

The 76-key apartment hotel, located in Greenway, one of Canberra’s major commercial and government hubs, is intended to cater to solo and group travel, for business or leisure purposes.

Positioned within the former Tuggeranong Innovation Centre Office Precinct, the converted property features a mix of modern studio, one-bedroom, two-bedroom and three-bedroom apartments, each with a fully equipped kitchen, smart TV, desk, in-room laundry facilities and secure on-site parking.

Veriu Group CEO Zed Sanjana said underutilised office space presents “an enormous opportunity” for the business.

“With a permanent shift towards working remotely post-pandemic, there’s been a significant reduction in the demand for office space in recent years,” Sanjana said.

“That’s resulted in a steady increase in Australia’s national office vacancy rate as the supply of space, much of it baked in through new development, has outpaced demand – in turn leading to massive reductions in office values.

“This has created significant pressure on owners of B and C grade office buildings in most states and territories, who are struggling to compete against newly constructed A-grade office buildings with modern facilities and tenant amenities.

“As land taxes and other holding costs continue to increase (particularly in Victoria for foreign owners), and with cashflow generation from these assets dwindling, office owners are being forced to face the reality of either selling their buildings significantly below their book value or invest significantly to restore future cash flows.

“We already know the Group’s unique long-term lease model has proven attractive to developers seeking certainty of income and the ability to finance large scale developments more easily in the current market. For owners of B and C-grade buildings considering the significant capex and lease incentive requirements to compete with A-grade buildings, the chance to reinvest in a different asset class managed by a hotel operator like Veriu, with a proven track record and a guaranteed long-term lease structure, is an increasingly compelling proposition.

“Readapting existing underutilised office space in prime locations also presents significant upside for us, as it allows Developers to minimise construction costs (as compared to new build) and complete projects much more quickly in markets where we’ve identified growing demand for quality CBD and suburban assets.”

Veriu Group’s upcoming office conversions include Veriu Adelaide on King William Street, slated to open in 2025, and a further four to five CBD office conversion opportunities in the pipeline.

“Our main driver is location – we’re looking for buildings located in areas driven by corporate travel demand, adjacent to offices, industrial precincts, universities, hospitals and major sources of transport infrastructure,” he said.

“In terms of structural requirements, there also needs to be natural lighting on at least 3 sides of the building, along with a relatively compact floorplates with the distance from the building’s core to the light source ideally not exceeding 10 – 12M, to achieve the design and floor efficiencies required to ensure feasibility.”

Sanjana says office conversions can sometimes be held back by stringent planning regulations and building codes and is calling for state and local governments to take a more flexible approach.

“On the one hand both federal and state governments have acknowledged that much of Australia is experiencing a serious housing supply shortage; on the other, there’s a whole lot of underutilised or vacant office space lying around in key CBD locations which could readily be converted to accommodation, often restricted by the rigid application of building codes,” he said.

“We’re lucky the local Councils we’ve dealt with to date have provided some dispensation to existing codes. But we really need Governments and councils everywhere to be more open-minded about allowing office conversions to proceed – especially if they’re serious about wanting to drive economic growth and tackle the current housing crisis.”

Punthill Tuggeranong is the third to open under the Punthill brand in the past three month, with more Veriu and Punthill properties slated to open in the coming months.