In the northern Italian city of Padua, people still refer to Ca’ del Chiostro as the Intendenza di Finanza. After going there for decades to pay their taxes, it will take some time for the historic building to shake its reputation as a centre of government bureaucracy. But for the past five years, the site has been undergoing a transformation that proves that with the right economics, location and structure, the elusive concept of office-to-residential conversion is possible. 

French real estate group Covivio, which has owned the property since 2007, is converting the 10,000 square metre (sqm) former tax office into a new residential complex called Ca’ del Chiostro, which will consist of 50 apartments ranging from two bedrooms to a 300-plus sqm villa. It is the latest iteration for the 15th century building which has been a convent, military barracks, and since the mid-1850s, government offices. 

Pandemic pain points

Within Covivio’s €23bn European property portfolio, the €50m needed to convert Ca’ del Chiostro, which will complete next year, is far from its biggest project. But the price tag belies its significance for an industry needing office-to-resi examples. These conversions help tackle local housing shortages, and redeploy workplaces emptied by the rise of remote working since the Covid-19 pandemic. But their financial feasibility has been stymied by large floorplans lacking windows, plumbing unable to support more bathrooms, and slow government approvals. Besides, the industry widely perceives commercial space as more profitable than residential. 

Ca’ del Chiostro, however, shows that with the right conditions, developers can transform these properties into higher-value assets while maintaining their external structure. “There must be a deep analysis at the beginning to understand if the asset is fit for conversion,” says Alexei Dal Pastro, CEO of Covivio’s Italian business. “After that, if technically and financially it makes sense … it shouldn’t be riskier than any other development in the city.”  

Building blocks 

Covivio started studying the building’s potential transformation in 2009 when its tax office tenants vacated. “Since the beginning it was pretty clear that a conversion to residential made a lot of sense,” says Mr Dal Pastro.  

The building’s structure, which consists of four wings surrounding an internal courtyard, provides the green space demanded by residential tenants and which most offices lack. The narrowness of the wings was amenable to creating apartments that benefit from existing windows on opposing walls. Underground parking was “clearly needed to commercialise the flats”, says Mr Dal Pastro. The two years of construction required to build this has been the project’s biggest technical challenge, he adds. 

Another factor supporting the Padua office-to-resi conversion is its sought-after residential location in the small city centre. “The surroundings have quite an impact on the decision of which kind of [asset class to adopt],” says Mr Dal Pastro. The site is also located in an area zoned for residential use, which eased its bureaucratic hurdles. 

The property being in Padua, instead of a national business hub, was key to the project making financial sense. The city’s housing demand, buoyed by its large university and strong small business ecosystem, outperforms its office market. “If the same building was in Milan, where office demand and rents are higher, maybe we could have evaluated to keep it as an office,” says Mr Dal Pastro. 

Ca’ del Chiostro’s final key ingredient has been patience. Covivio involved the municipality in the project from the outset in 2010. After receiving government approvals in 2015, it took another seven years of research and onboarding local construction firm Carron as its partner before making its final investment decision in 2022.

More on real estate transitions:

• Out of office: US vacancy rates hit record high
• Office demand significantly reduced by pandemic, says McKinsey
• Opinion | Mipim's counter festival spotlights Europe's housing crisis

Beyond Padua

Office-to-resi projects demand persistence, but it is part of the path to tackling housing shortages and empty offices — two of the real estate industry’s biggest crises. “As long-term investors … it’s something we need to be able to deliver,” says Covivio’s CEO, Christophe Kullmann. 

Across five cities in France, the company is converting underutilised offices into some 3300 homes being delivered between 2023 and 2028, for which it has a committed sales pipeline of 95%. Yet in most cases, for structural reasons, these offices have had to be demolished and then rebuilt as apartments.

Office-to-residential is picking up elsewhere, with solid pipelines in major European cities like London and in the US market as a whole. Elsewhere, the conditions are not ripe yet. Ireland is a case in point, where despite a severe housing crisis, local authorities are struggling to divert investment from commercial into residential – least of all converting offices into apartments. 

Despite the challenges, office-to-resi conversions are gaining momentum. “At the end of the day, [they] are a way to rebuild the city,” says Mr Kullmann.

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