Real estate reincarnation – Translation of an article that appeared in Finance, Slovenia’s daily financial newspaper, on Tuesday 12th December 2017

By Jacqueline Stuart

Cities need to change along with the needs of their inhabitants. And they change more rapidly than one might think. Just 30 years ago there were virtually no supermarkets in Slovenia. There was a choice in Ljubljana’s open air market of potatoes or carrots. China’s ascent to the industrial superpower of today was only beginning, and cheap air transport not yet widely available. There wasn’t much need for shops, because there was little available to buy. Tourism to Slovenia consisted of central Europeans and ex-Yugoslavs arriving by car, and an assortment of backpackers transiting through on the train.

Fast forward to 2017, and the picture could not be more different. Ljubljana is one of the best served retail destinations in the region, a large number of industrial jobs have been replaced with service roles, and tourists arrive from all over the world on low cost airlines.

The impact of these shifts on real estate has been huge. Many factories have closed down, some redeveloped for other uses, others abandoned wastelands. New retail parks have been constructed in all parts of the city. All kinds of buildings have been converted into hotels and hostels. And many modern office towers have been built to accommodate the large number of office workers.

Redundant buildings

Most buildings have a limited lifespan unless redeveloped. Factories and warehouses from  even 20 years ago no longer serve modern occupiers, that require very high ceilings – and no pillars to impede the workflow. Today’s retailers like to be either in busy high streets, with many shoppers walking by, or in malls beside other similar brands, with good availability of parking. The large multi-family homes that previous generations grew up in are no longer being built in quantity, now replaced with small apartments, many with one solitary occupant.

Battersea Power Station

One of London’s most iconic landmarks, it is located on the south bank of the river Thames across the water from the elite neighbourhood of Chelsea. It was built in the 1930s, and 50s. The station ceased generating electricity in 1983. Over the past 50 years it has become world famous and is protected by cultural heritage. The power station features on the cover art of Pink Floyd’s 1977 album Animals, and appeared in the 1965 Beatles’ film Help!

Since the power station’s closure, numerous redevelopment plans were drawn up by successive site owners. In 2012, it was sold to Malaysia’s SP Setia and Sime Darby,  who have developed the site into a luxury mixed use project of apartments, office, retail and leisure. Apple will locate its new London headquarters at Battersea Power Station, becoming the largest office tenant with 1,400 staff across six floors in the central boiler house. The project has been under construction for the past four years and the first 100 apartments are already occupied by discerning Londoners, including pop star Sting and survival expert Bear Grylls. It is expected to be completed in 2026, and will eventually accommodate 4,239 new homes. Most of the luxury apartments on the upper floors have been sold off plan, from 900,000€ for a studio, to 4 bedroom apartments at more than 4,500,000€. The three penthouses have yet to be priced,  they are expected to fetch upwards of 28,000,000€.

The Hendrick’s hotel

A canalside boutique hotel of 25 rooms and suites opened recently in Amsterdam’s city centre. The redevelopment was inspired by the intriguing life of Prince Hendrick of The Netherlands. The property comprises two adjoining 17th century canal houses, dating from Amsterdam’s golden age, on the old northern border of the city, where cargo was taken off ships. The hotel was originally a ‘pakhuis’ storing a wide range of trade goods.  Each of the rooms and suites is individually designed, with decoration inspired by sea voyages and trade.

This is not the second incarnation of the property, but the third, it previously served as the headquarters of a bank.

BTC

The largest example of a redevelopment in Slovenia is the BTC retail park. Originally the most important bonded warehouse facility in Yugoslavia, it became one of the leading business, shopping, entertainment, recreation and cultural centres in Europe following the breakup of the federation. It now provides space for 450 shops retailing over 10,000 brands, and over 70 bars and restaurants. It was rebranded as BTC City after further development of a water park, multiplex cinema, Radisson Blu hotel, and two office towers. The zone attracts over 22 million visitors a year from as far afield as Croatia and Italy.

Some parts of BTC have incarnated a third time, there is a space under the Emporium fashion mall now dedicated to the ABC accelerator that assists tech start ups to get from stage zero to stage hero, grooming them for VC funds from Germany and Silicon Valley.

The growth in eCommerce in Slovenia and worldwide is creating a greater need for logistics facilities, and a decreasing need for retail space. Ljubljana has a severe shortage of warehouses, ironically a part of BTC might have to be converted back into industrial space at some point to meet demand.

Anything can be converted!

The Ljubljana Celica hostel is another interesting conversion. Originally a military prison, it is now a 20 room property where you can experience a night in a cell.  More than 80 local and international artists joined forces to convert the property into art suites. Guests are assigned a cell at the moment of booking and cannot choose which one they want, just as the prisoners could not choose theirs back in the day. Celica has been awarded the Gold Travelife certification for its promotion of sustainable tourism.

Most commercial property including offices, shops and warehouses has the potential to be transformed into contemporary living spaces. They often offer character and features that newer buildings cannot, making them attractive to buyers and tenants. Some developers have even transformed shipping containers into hipster starter home developments.

Upcoming redevelopments

Two Ljubljana riverside factories, the Rog bicycle plant and the Cukrarna sugar factory are due for redevelopment. It is likely that the Municipality will trade Rog with the Ministry of Education, as the new site for the Design and Photography high school. In return they will get the part of Križanke monastery currently occupied by the school. Cukrarna is designated for a cultural centre comprising an art gallery and live music venue, expected to open in 2020.

How difficult is it to redevelop?

Redevelopment comes with challenges and risks for developers. Many properties in Slovenia are protected by architect’s intellectual property rights, others protected by cultural heritage. Cooperation from the planning authorities, and all other stakeholders is essential. Getting planning permission for anything is difficult and time consuming in Slovenia, and this is no doubt why there are few notable redevelopments.

In 2015 the law changed in the UK with the introduction of ‘permitted development rights’, that allow developers to convert properties without conventional planning permission. This led to a boom of office to residential conversions, with 12,824 much needed new homes coming to market in only one year, in office buildings that no longer served their purpose.

One important issue is lack of parking. Many older buildings have insufficient or no parking, and this deters some planners from encouraging redevelopment. However the reality in Ljubljana is that every year there are more and more cars that adversely affect the environment and air quality, and slow down public transport. It is time to say enough is enough, and limit inner city developments to providing parking only for shared car schemes.

What potential is there for redevelopment in Ljubljana?

Ljubljana has a shortage of residential, and an excess of office space. There is over 250,000m2 of vacant office space in the city, most of it in poor quality outdated buildings. There are many examples of drab 1960s office blocks in the UK that have been converted  to vibrant urban living spaces. Croydon in south London is a good example, just 5 years ago, around half the office space in the area was empty, a worse ratio than downtown Detroit. Since the change of law however, there has been a frenzy of conversion into smart new apartments.

What about the environmental impact of redevelopment?

A Swedish study investigated the climate impact of redevelopment Vs. demolition and rebuild of an apartment building. The renovated building was expected to have an energy performance close to the current demands of the Swedish building code.

A renovation the had the least climate change impact from a life cycle perspective compared to demolishing and building a new building, assuming a 50 year life span. Given the large difference in global warming potential between the renovation scenario and

New build scenario, they concluded that renovation is also preferable even if lower energy efficiency is achieved.

Jacqueline Stuart is a Director of S-Invest d.o.o.