Values key in drive to convert high street to homes
The Government has relaxed planning rules to encourage change of use for commercial property but how effective will it be? Sharon Dale reports.
AN ATTEMPT to increase housing stock while solving the problem of empty shops and offices has resulted in planning regulations being relaxed.
The Government recently changed rules on permitted development rights for the next three years to make it easier to convert offices into homes and the same will soon apply to retail premises.
Planning Minister Nick Boles believes that local authorities should concentrate on preserving their prime shopping streets, while shops in struggling areas could be converted to houses and flats.
His latest proposals to make change of use easier could help tackle the UK’s housing shortage and reduce the amount of greenfield land needed for building.
He says: “People’s shopping habits are changing very fast as a result of the rise in internet shopping and changes in lifestyles and working patterns. We need to think creatively about how to help town centres thrive in this new era. We want to encourage local councils to concentrate retail activity into the prime shopping streets in the heart of their town centres and adopt a more relaxed approach to under-used retail frontages.”
The swap from commercial to residential sounds like a good idea in principle. There are empty and half-filled office blocks in town and city centres thanks to a combination of recession, home working and a move to cheaper, edge-of-town sites.
Meanwhile, spending in town centre shops has fallen over the past decade and one-third of high streets are classed as degenerating or failing.
The issue is whether the numbers stack up and, according to Savills, they may not for office conversions in the North.
“The three-year exemption will be welcome news for some developers and owners of vacant office space, especially if the Section 106 requirement to deliver affordable housing alongside any scheme no longer applies.
“The removal of the 106 agreement could double the potential office to residential value in central London and provide a real incentive to convert offices to homes in other cities,” Mat Oakley, director of Savills research.
But, Savills warn that this policy change will only bring forward new homes through conversions in locations where residential values are much higher than office values.
The firm’s analysis reveals a North/South divide and shows that conversion is not always a viable option.
A study of eight locations suggests that while there may be some opportunities for conversion to prime residential use in Manchester and Leeds, viability is marginal, with Birmingham offering a potential uplift of just £75 per square foot. At this level, viability would be undermined by the costs of conversion, which would total at least £100 per square foot, even without the costs associated with the planning process.
“This would be particularly tested if a change of use were to trigger Community Infrastructure charges, notably where offices have been empty for over six months.
“The greatest value uplift will generally be in the South and locations such as Cambridge, where levels of economic activity and home owner equity mean conversion is already viable, assuming the availability of stock in locations suitable for residential,” says Mat Oakley.
“We expect a ripple of new office to residential conversions, particularly if affordable housing requirements are lifted. But in locations where residential values and market activity are still heavily suppressed, caution will quickly displace enthusiasm. It remains to be seen how lenders will view such conversions. Early conversations suggest a willingness to consider projects in London and the South East.”
Mark Johnson, of planning consultants Johnson Brook, adds: “Anything that simplifies the planning process is good news although I’m not convinced these changes will make much difference in the North. The majority of city centre grade B office buildings are not suitable for conversion and nor are most industrial buildings.”
Business premises that were originally residential tend to be easier to covert.
Period townhouses are a good example and may well appeal to owner occupiers, though listed buildings are not included in the three-year window of opportunity. As for an easy change of use for shops the same due diligence applies.
Conversion costs are likely to be high. Frontages may need changing along with wiring and suspended ceilings. Get an architect to look at how successful a new layout would be and ask an estate agent to give you a rough estimate on how much the property might be worth when converted.
Pubs in good locations can also make great homes and there looks set to be lots of opportunities to buy.
The Good Pub Guide 2014 predicts that up to 4,000 licensed premises are at risk of closing over the next 12 months.
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NEW LOOK: To tackle the problem of empty high street shops and offices, new planning rules could make it easier to convert them to homes.