Current trends

The impact of the pandemic has led to a shift in the requirements of individuals and businesses in terms of office and residential space. The rise in remote working in Germany has led to a reduction in the demand for office space. Concurrently, there is a growing demand for larger homes, particularly those with additional space for home offices.

This naturally gives rise to the need for the conversion of existing office buildings into residential buildings. The same trend can be observed in other asset classes, such as retail properties, which are facing pressure in inner-city locations and in smaller towns and are increasingly being converted into residential space.

The legal implications of repurposing projects are multifaceted. While repurposing may appear to be a reasonable solution at first glance, it still faces significant hurdles under German law. However, legislators are gradually attempting to reduce these barriers in favour of creating additional living space.

Planning law

With regard to planning law in Germany, it is important to note that any change of use will require a comprehensive review of the building's compliance with planning regulations. In accordance with the German concept of spatial separation of conflicting use types (Trennungsprinzip), an office property in a central core area or, even more so, in a commercial area cannot be converted to residential use without further consideration. Generally, this aims at safeguarding the interests of commercial enterprises in the area, while also protecting the quality of life of residents, which should not be compromised by factors such as noise pollution.

The German legislature has acknowledged this and has enacted numerous special regulations to facilitate conversion to residential use.

For instance, in a market where housing is in short supply, it may be possible to override the provisions of the development plan in favour of residential construction, even if this is at odds with the core tenets of the existing plan. (This is in accordance with Section 31(3) of the German Building Code). In areas without a development plan, it should be possible to deviate from the requirement of blending in with the immediate surroundings, the central standard of permissibility for such areas, in favour of changes of use. Furthermore, the legislator is currently planning to introduce additional simplifications to the German Building Code.

Building regulations law

In addition to planning law, building regulations is a key consideration in conversions. As a special hazard prevention law, it sets out certain safety and quality standards. Furthermore, it establishes the procedure for approving changes of use. Significantly, in Germany it should be noted that this is a matter of state law, and therefore there are certain differences between the 16 federal states.

From a procedural standpoint, recent years have seen a number of simplifications for changes of use in state building regulations. In North Rhine-Westphalia (NRW), for instance, residential buildings with up to five full stories have been permitted to be built under the permit exemption procedure since 2024. This is a streamlined process that does not require a building permit and can be completed in just one month after submission of the building documents to the approval authority. Furthermore, as has already been implemented in various other federal states, a presumption of approval specifically in favour of residential buildings will be added if no decision has been made on a building application within a specified period, usually three months.

Regardless of the necessity for approval, however, every conversion project is required to comply with the applicable legal requirements for such a project. In the case of conversions, building owners are typically required to ensure that the new use complies with special safety requirements. In the case of a conversion to residential use, it is essential to consider fire safety aspects, lighting and ventilation requirements for the often deep office floors, energy efficiency requirements, sound insulation levels, accessibility requirements (elevators) and the need to provide children's play areas. Consequently, the potential of each property must be evaluated on a case-by-case basis to ascertain its suitability for conversion.

State subsidies

To further increase the attractiveness of repurposing projects, particularly the conversion of non-residential buildings into residential ones, a variety of subsidy programs is available in Germany.

Such subsidy programs are available at the federal, state, and even municipal levels. For instance, owners may be eligible for subsidies from KfW (Kreditanstalt für Wiederaufbau) and BAFA (Bundesamt für Wirtschaft und Außenkontrolle) through the Federal Subsidy for Efficient Buildings (BEG). In NRW, for instance, the state government provides a minimum of 200 million euros annually in modernization funding to support the refurbishment of rented apartments, owner-occupied apartments, and homes.

In September 2023, the federal government presented a package of measures for the construction and real estate industry, with a specific focus on the conversion of non-residential buildings into residential buildings. This includes plans to support the conversion of vacant offices and stores into new apartments with 480 million euros over the next two years.

Next steps

In view of the change in working patterns as well as ESG factors and the state support available, the trend towards repurposing in Germany is certainly one we expect to see continuing to increase in momentum. The increase in the conversion of commercial buildings to residential uses, responding to the growing demand for housing and the need to repurpose buildings that have become obsolete, looks set to continue. Any change of use in Germany will require analysis of the relevant local regulations in the relevant federal state to ascertain the steps which need to be taken. Our team of real estate and planning lawyers would be very happy to guide you along this path and assist you in this fast moving area.

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Reimagining Real Estate: Maximising the potential of real estate for today and tomorrow - Hogan Lovells Engage