Changes within the commercial real estate (CRE) market are pushing property owners to consider repurposing their assets. Pivoting to the living sector has emerged as an attractive option for landlords seeking greater yields on their properties.
However, changing the use of any property can be challenging. Below, we review the potential risks developers may encounter as they repurpose offices spaces, suitable risk mitigation strategies, and how insurance helps build resilience into regeneration projects.
The proliferation of ‘stranded assets’ within CRE
Within the commercial property space, recent years have seen a ‘flight to quality’. Across the UK, tenants are demanding ready-made solutions they can quickly and seamlessly move into. Businesses are looking for offices in optimum locations that possess valuable amenities and good transportation links.
For property owners with offices in the ‘wrong pitch’, longer vacancy times have become the norm as they contend with a growing portfolio of ‘stranded assets’. Consequently, developers are left questioning whether to refurb and retrofit offices or look to repurpose them as living sector assets.
For both property owners and prospective investors, repurposing existing offices has emerged as a viable option. Instead of constructing new buildings, developing existing structures may be safer, cheaper, and require less planning requirements.
Additionally, fuelled by initiatives that contribute toward the push for net zero, asset owners are pushed to restructure, refurbish, or repurpose buildings – instead of constructing from ground up.
Which assets are developers targeting?
Primarily, developers have been exploring transforming office assets into the following living sector areas:
Co-living
Purpose-Built Student Accommodation (PBSA)
Build-to-Rent (BTR)
Overwhelmingly, developers and landlords have been looking to convert offices into co-living assets. To maximise use of floor space, co-living schemes are more popular than BTR projects as units are typically smaller and with shared amenities, providing greater yields.
Furthermore, the co-living model caters better to young professionals. Typically graduates, this demographic is comprised of a mobile workforce who prioritise flexible lease terms, affordability, and convenience.
The associated risks with repurposing offices
When repurposing CRE for residential purposes, reconfiguring the layout and implementing compartmentation will inevitably invite risks for developers.
Modifying the plumbing, electrics, lighting, and HVAC systems for residential use can be challenging. If designs are flawed – or outright dangerous to future tenants – rebuilds and redesigns can bring significant costs.
Developers will have to secure project funding and planning permission ahead of time for construction to start. Failure to do so will likely result in project costs spiralling due to:
Deadline extensions
Design rework
Prolonged contracts with suppliers/contractors
Building Safety Act (BSA) considerations
For developers repurposing high-rise buildings for residential use, the BSA comes sharply into focus. The BSA specifically targets residential buildings either over 18 metres or seven storeys in height, to ensure that safety is prioritised. Getting sign off for the ‘Gateway2’ stage – which needs to be achieved for construction to begin – can be challenging (opens a new window).
Due to a large volume of applications and inadequate resourcing to judge submissions, Gateway2 submissions can become gridlocked. Delays can be particularly problematic for developers with specific dates for completion, such as PBSA projects targeting the beginning of an academic year.
How buildings are being repurposed with fire safety in mind is particularly crucial. Residential spaces must have external wall and façade materials that are entirely non-combustible, a second staircase to ensure safer evacuation, an adequate sprinkler system, and be compartmentalised with fire-resistant walls and floors to contain fire at its origin.
Client View
“Clearly, the past 18 months or so have seen an unprecedented level of issues – good and bad – that mean as a developer you are constantly having to plan and plan again.
“The current indications that the BSR/Gateway2 application timing is slowly improving. This is encouraging and will drive more confidence in taking forward the best and ambitious projects and remove the handbrake. However, the new normal will mean that where once a typical project could be built within 21 months or so, this will move out to around 30 months.
“As such, this makes it a challenge for certain sources of capital. Therefore, exploring opportunities to repurpose existing former office buildings is becoming increasingly attractive, given the potential to speed the process up, whilst also addressing issues such as affordability and sustainable building targets which should remain at the forefront of the development agenda.”
David Campbell, CEO, Alumno
Essential insurance policies for repurposing offices
Insurers are very careful around insuring change of property use without a comprehensive understanding of developers’ plans. Insurance can provide various forms of protection, but the correct policies, coverage, and limits will depend on the scale and nature of work developers are taking on.
Early engagement with insurance professionals is crucial. Enabling early review of your plans from brokers and insurers will facilitate dialogue and flagging of any issues regarding designs.
Insurance policies developers should consider include:
Owner-controlled insurance programme (OCIP)
Delay in start-up insurance (however, developers must recognise that this policy is also relevant when damage occurs, policyholders cannot claim for delays for other reasons)
Unoccupied property insurance
Loss of revenue cover
Lockton seminar
We will be exploring the above areas further at our Living Sectors Breakfast Seminar: ‘Risk, Resilience and the Future of Development’, on 12 February 2026 at our London office. To attend, register your interest here (opens a new window).
For further information, please visit our Living Sector (opens a new window) page or contact a member of our Real Estate team.
