More conversions of offices to apartments in Leeds city centre

Office to residential conversions can stack up financially
Office to residential conversions can stack up financially
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Report by James Mohammed, residential investment and development expert, Allsop, Leeds

Recent reports on the traditional house building market have accused developers of drip feeding the supply of new homes in an attempt to keep house price figures high, which in turn is preventing the UK from hitting its housing targets.

The more likely reasons for the continued lack of housing supply and Government targets not being met are labour and material shortages and fewer smaller/medium developers building than pre-recession, due to the lack of available finance and planning authorities failing to identify enough land to meet local housing needs.

In May 2013, the previous Government made changes to permitted development rights (PDR), which enabled developers to convert offices to residential use without the need to secure planning permission.

The streamlined system means developers only require a “prior approval” application, saving them both time and money. As part of the “prior approval”, local authorities can only consider transport and highways impacts, contamination and flooding risks; affordable housing is not a consideration, which

significantly enhances the viability and attraction of these conversion opportunities.

The intention of the change in the law was to help plug the required housing shortfall, whilst at the same ntime bringing tired and/or vacant buildings back in to use.

Signs suggest PDR have proved extremely popular, with a number of office blocks in the central business district of Leeds being converted to

residential. The take up in the periphery areas does not appear to be as strong, due partly to the achievable end sales values and a lack of appetite for non-city centre located developments of apartments.

There are concerns that permitted development will lead to the loss of much needed office accommodation and, to safeguard this, the Government has stated that, if councils are particularly concerned, they can enforce an “Article 4” direction to suspend the PDR. We have seen this in Leeds in a different capacity, with the council restricting developers from converting standard houses to houses in multiple occupation through PDR.

However, given the influx of new office developments in Leeds City Centre, we do not expect the Council to enforce the “Article 4” direction on office to residential here.

At a national level, it is agreed that the Government needs to find a compromise that protects vital employment space, whilst also addressing the serious shortfall in housing.

In the UK, in the 12-month period from July 2015 to June 2016, a total of 1,066 office to residential permitted development applications were permitted with prior approval not required and a further 1,480 applications granted with prior approval. In the same 12-month period in Leeds alone, there have been 21 office to residential PDR granted – these are the number of application approvals; the actual number of dwellings created in Leeds during this period was 600, with Leeds Council approving a further 737 dwellings since the introduction of the permitted rights.

We expect this trend will continue to grow. Both regionally and nationally, Allsop’s auction department has seen a significant shift in interest from

residential developers for office accommodation and, in the North, our last four private treaty office sales have gone under offer to residential developers.

So far, office to residential permitted development has had a positive impact, providing another avenue for bringing homes to the market.