Commercial property is growing in popularity as a potential source for residential conversions. The Government’s New Permitted Development Rights, which only came into affect on the 30th of May, gives a three year window for the conversion of offices to residential use, without the need for planning permission. Although it is early days it already appears to be having an impact.
“In the last few weeks we have seen a growing demand from developers,” says Richard Sayer, Senior Commercial Property Consultant at KFH. “And this will increase as time goes by”.
Office to residential conversion can make a lot of economic sense. A small office in Clapham, South West London sells for roughly £165,000 or £250 per sq foot. If this same office were converted to a one bedroom flat, it would be worth £325,000 or £465 per square foot. ”Though there are conversion costs, there is still a considerable difference in values and you are almost doubling your money,” says Sayer.
New Permitted Development rights are fairly wide ranging and most areas qualify, though there are some restrictions on location: Kensington & Chelsea is the only London borough totally exempt while others such as the City of London and Westminster have won certain zone exemptions. Given the costs of conversion, redeveloping office space only makes economic sense where there is a large price difference between office and residential property. Sayer anticipates the majority of residential conversions occurring where house prices are high: in affluent boroughs and parts of inner London. “Offices in nice areas, near to a train station will be highly sought after,” he says.
No one knows how much office space is suitable for conversion but larger deep blocks are generally felt to be unpractical. Flats need natural light throughout, so shallower buildings are more likely to be redeveloped. Sixties and seventies blocks with good natural light are likely candidates for conversion. However, planning processes still have to be met and planning regulations apply. “There are still a few hurdles,” says Sayer.
Nevertheless, given the housing shortage and demand for homes in the Capital, it is anticipated that more developers will be looking for office buildings to convert.