THE UK’s commercial property market could get a lift from Government plans to boost residential construction, according to research from Coutts.
Henry Lancaster, a senior investment analyst at Coutts, believes the changes could lead to redundant offices being brought back into “profitable use”.
Mr Lancaster highlighted the fact that the Government had announced rules to ease planning restrictions on converting office premises for residential use.
In the latest Coutts Wealth Watch, he said: “The new rules concentrate on expanding the permitted development rights for a narrower target of unused offices. However, local authorities, starting with the City of London, can opt out to prevent disruption to the future development of business districts.
“For the commercial property market, the beneficial side effect of these plans to boost the supply of housing would be the conversion of redundant offices to profitable use. But in order for this potential to be realised, property development has to pick up. So the impact will initially be limited outside of the booming London market.
“Real rents, adjusted for inflation, on residential property have gone up 80 per cent in the past 25 years, while commercial property rents have only kept pace with inflation over that same period.”
If conversions to residential use were to absorb surplus commercial property, then the long underperformance of commercial property could reverse, Mr Lancaster argued.