David Wilson, Director of the CCIM Institute, said:
“In this report, KC Conway, Chief Economist for the CCIM Institute, covers adaptive reuse, an increasingly popular yet misunderstood and under-analyzed area of real estate. I've had the opportunity to travel the world on behalf of CCIM and have seen firsthand that it is a global phenomenon. From turn-of-the-century warehouses to castles to train stations, developers and investors have extracted enormous value from disused buildings. This report is the first step in the Alabama Real Estate Center's effort to redefine and quantify adaptive reuse, elevating it to a distinct product category within commercial real estate. We hope that this effort will lead to increased investment and development activity in adaptive reuse, ultimately resulting in a stronger and more resilient commercial real estate industry.”
Four elements are necessary for a project to qualify as adaptive reuse.
Existing Structure: Adaptive reuse projects may involve some amount of new construction and/or space expansion/addition, but they always start with an existing structure.
Functional and/or Economic Obsolescence: Every adaptive reuse project begins with a property that is in a state of disrepair, has high vacancy rates, or is at its best but in transition. In essence, the previous use is no longer productive or economically viable, and the tenants have left.
Change of Use: The project/property must involve the reuse of the previous structure and use, and not simply reoccupation with tenant renovations. This key point distinguishes our methodology from other industry studies on AdRu.
Economic Feasibility: Any new project/property must pass the ultimate test of highest and best use. Not only must reuse be physically possible and legally permitted, it must also be economically feasible. Due to assembly costs, the high cost of reuse with greater cost overrun risk factors than new build, and speculative lease-up risk, local government incentives may be required to make the project economically feasible.
Download the report to read more.