Investors are heading north to turn offices into flats thanks to relaxed planning rules. Sharon Dale reports.
A glut of empty and under-used commercial buildings prompted the government to introduce permitted development rights for office-to-residential conversions.
The three-year trial period saw developers in London leap on the opportunity to turn offices into flats without the need for lengthy and expensive planning applications.
The boom, which began in 2013, was suppressed recently after uncertainty over whether the relaxed rules would continue.
This month, the government fulfilled a promise to make the temporary PD rights permanent and among those celebrating is Leeds-based HeadOffice3.
The firm, which began life as a school furniture and fit-out business, is now one of the country’s leading office-to-resi conversion specialists. It has its own planners, architects, structural engineers, construction team and interior designers
“We do everything in-house from surveying and costing possible projects to planning, design and construction,” says Residential Project Director Glen Harding.
Until recently, most of its work has been in London and the south east but Glen says that developers and investors are rushing north.
There is interest from institutional investors, such as pension funds, who want to put their money into the private rented sector. They are looking for large office blocks that can house 100-plus apartments.
Smaller offices are being converted into flats for sale or into rental properties. Among these is a former building society in Forster Square, Bradford, which is now 57 flats.
Yorkshire House in Castleford was a 1960s office block that proved unsaleable at its £250,000 asking price. Its owner hired HeadOffice3 to convert it into 24 rental apartments. The cost of the conversion was £983,000 and the property is now worth almost £2m.
“Funding for these projects is not usually an issue and we have found that banks are happy to lend 60 to 70 per cent of the construction costs, especially now that selling apartments off-plan is becoming easier,” says Glen, who adds that, in general, the cost of conversion is about three or four times the value of the building.
The main attraction of converting office buildings into apartments is the lack of bureaucracy. Before permitted development was introduced, the planning process was long, costly and uncertain. Local authorities could also impose section 106 agreements, where developers had to pay towards local amenities and infrastructure.
“You still have to apply to the local authority but now it is a three-page form and a £195 change of use charge. We have just done one for a £14m scheme to turn an office block in the Midlands into 140 apartments and we had approval within eight weeks,” says Glen.
“If we had done a planning application it would’ve taken months and cost thousands. If you add on a section 106 agreement as well it could be as much as £500,000.”
An office-to-residential conversion can still be refused on grounds of parking or if the council can prove there is a lack of office space in the area. Planning officers can also insist on the use of certain materials to ensure the revamped building is in keeping with the area.
While all this sounds straightforward, there can be issues and frustrations. Not all office blocks are suitable for conversion. Deep structures are not ideal as their central areas are dark. Long and thin buildings are best as they have more windows. For those contemplating demolition it is not an option under PD rules.
Drainage and plumbing is a major issue on most conversions, as is air-tightness.
“An office usually has a toilet at one end of the building. When you turn the whole place into flats that have a bathroom each, it is a big job and quite often we have to dig trenches on the bottom floor to fit new drains. Getting u-values right in a 1960s concrete building full of asbestos is also tricky,” says Glen.
City and town centre locations are also problematic for deliveries.
“We had 100 tonnes of plasterboard for each floor on one big project and we ended up strapping a hoist to the building to get it up as quickly as possible. Deliveries often have to happen at night,” says Glen.
The new PD legislation also insists on noise assessment tests and improved soundproofing to counter noise from surrounding properties that have commercial uses. This is to protect established businesses, such as music venues, from complaints.
Another gripe is that all PD projects have to be completed within three years of being granted.
“There’s a multi-million pound redevelopment that is a two-year project but a year has already been spent on legal title issues and another year wrangling over a party wall agreement so sticking to a three year deadline is going to be difficult,” says Glen, who believes that the relaxed rules are beneficial for us all.
“It is a fantastic idea for recycling old offices that are no longer fit for purpose and it is creating much-needed housing,” he says.
Not everyone agrees but whatever the arguments there is plenty of time to take advantage of the permitted development rights. The government is planning a review of the office-to-residential policy in 2021.