COMMERCIAL Willing Convert
Can converting commercial buildings to homes really help the housing shortage? Andrea Kirkby investigates.
I
t’s no news to anyone that we have a housing shortage. What’s less clear is what can be done about it. The government’s intended relaxation of
planning law is obviously intended to help, but how useful is it likely to be? What’s currently proposed is that B1,
office and light industrial, should have residential (C3) as a permitted development, in other words that no planning application would be needed for that change of use. That doesn’t include B2 (general industrial) and B8 (storage and distribution), and it also excludes retail space. Take a look at the statistics.
The Government’s consultation paper suggests that the conversion of half the empty B1, B2 and B8 space could create 260,000 homes over the next ten years. (Some cynics have pointed out that this does little more than replace 215,000 homes taken out of the construction pipeline last year by councils after the abolition of Regional Spatial Strategies.) The Institute for Public Policy Research
estimates there will be a shortfall of 750,000 new homes by 2025. According to Nick Pearce, IPPR Director, fewer than 100,000 homes are being built every year, while at least 250,000 new homes a year are needed. In that context, 250,000 extra homes is a help, but it doesn’t solve the problem. There would be a good argument for adding retail space (A1 to A3) to the mix, as well. Meanwhile Alex Morton, a researcher
at the thinktank Policy Exchange, says vacancy rates for commercial property are running at 17 per cent even in the South- East, while only three per cent of residential housing is unoccupied. Landlords faced with the cost of rates and insurance on empty buildings have preferred to demolish them, even though that represents a major one-off cost, with nearly 9,000 buildings pulled down in not quite two years from March 2007 to the end of 2009.
UNLOVED BUILDINGS The disparity in vacancy rates is at least partly explained not by recent changes in
32 APRIL 2012 PROPERTYdrum
Bull Inn Court, Covent Garden, a dingy unused building now converted to apartments. Many commercial buildings are
obsolescent. Some office property simply is not capable of being wired for the density of internet access now required by business, and many smaller high street shops don’t have parking space or loading bays, fine for boutiques but not for a supermarket.
THE ATTRACTION OF CONVERSION At the same time, household formation continues to grow, partly a result of immigration, but also of smaller household sizes. That varies from region to region; Guy Passey, of agent E A Shaw, says, “In prime London there’s a massive shortage of residential space,” and the same is true of most of the south-east. So does it seem likely that the proposed
changes will help increase the amount of housing development? There are obviously key attractions to
developers in converting commercial space to residential, and several developers have
environment, that can be important. But the biggest attraction for developers
is financial. Quite simply, land with planning permission for residential use is worth a lot more than commercially zoned land, and a residential building will sell for much more than an office block. Alex Morton’s report for Policy Exchange quotes prices per hectare of land for building at £600,000 for B2 and £710,000 for B1 use, but £1.85m for residential. Guy Passey says that in central London,
“you could probably look at £650 a square foot capital value for an office, whereas if you go to residential use, the value is £1250 a square foot, so there’s a big difference.” Out of that figure, he guesses conversion costs would run to about £350 a square foot. That would still leave a gross profit margin of 25 per cent. In other markets the difference is even
more marked. Philip Stewardson says he expects to get three to ten times as much from residential as commercial use, depending on the density of development.
the housing et, but by changes in the structure of the economy. Technological progress and changes in the structure of British industry have led to changes in demand for commercial property. High- tech manufacturing needs different types of space from old smoke-stack industries, while heavier internet use has shrunk demand for offices as filing cabinets are replaced by slim-line servers and hot- desking becomes more common. Meanwhile, the high street has its own challenges as online retail has replaced the trip into town with one-click shopping.
already identified this area as a good one to work in. Philip Stewardson of Stewardson Developments, which works in the West Midlands, says “The attraction to us has been large sites in good locations where the buildings have had enormous floor spaces. That lends itself to so many uses.” He points out that a high percentage of
the cost of newbuild is ground work; any conversion, even with a high percentage of structural changes, saves that cost. Conversions also have a much quicker turnaround time, so capital is tied up for a shorter period. In the current
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