PDR: will unused office space eventually run out?

Permitted development rights (PDR) allow certain building and development works to be carried out without the need to make a planning application.

These rights are set out in The Town and Country Planning (General Permitted Development) (England) Order 2015.

Scotland, Wales and Northern Ireland have their own version of PDR.

PDR allows larger extensions to homes, offices and retail property to be made without submitting a planning application.

On 13th October 2015, the government announced that offices-to-residential PDR would be made permanent.

The Town and Country Planning (Use Classes) Order 1987 groups common uses of land and buildings into four classes (A to D).

For example, offices – excluding those with a financial and professional services use – comes under class B1(a) and dwellinghouses comes under class C3.

Development Finance Today recently asked the property development industry their thoughts on whether we could eventually run out of unused office space to convert into residential property.

Will we eventually run out of unused office space to convert into residential?

Harry Peradigou, head of property finance at Brightstone Law, said that it had seen less office-to-residential PDR schemes lately.

“The first 12 months following the change in legislation saw a raft of such schemes, but progressively less since then. 

“We now see such schemes perhaps one in every 30 to 40 loans.

“I suspect this is more about suitability and feasibility as a project, rather than lack of space.”

Jordan McBriar, director at Adapt Finance, added: “What we have seen over the past few years is that the large corporations – who have a need for the larger office premises – have either had to downsize due to changes in their circumstances or, in fact, [needed] to build specific sites for their purposes elsewhere.

“We have completed circa 800 residential units under PDR and can categorically say that the newest building, by means of initial construction, was from 1997.

“All previous conversions were working buildings prior to that date and all of the occupants had moved out to purpose-built offices or out of city centre locations.”

Zuhair Mirza, principal at Avamore Capital, said that, naturally, there was a fixed supply of existing office space.

“We have also seen in a number of new consents being granted, that the council has specifically excluded PDR in the consent by allowing B1 use only.

“We are also seeing market forces come into play in a number of areas given the supply of office space has been contracting and, as a result, rents have been rising and landlords are less inclined to convert office space to residential.

Nick Holding-Parsons, asset finance adviser at Arc & Co, said that PDR had now been a significant market factor for a number of years.

“This has meant that the prime sites in cities or towns have been, or are being, developed.

“Therefore, from a supply perspective, opportunities in the areas traditionally popular for office-to-resi conversions are becoming less common.

“The PDR market is adapting and evolving to find more supply at a profitable rate.

“There are still plenty of office blocks that have the potential to be converted but, largely, it is other factors that are preventing [these transactions] from happening.”

Manny Aparicio, director and head of project management at Naismiths believed that the appetite for conversion was as fervent as ever.

“But, as desirable stock in towns and cities dries up, competition is quickly driving up prices, almost to the point where some previously attractive sites are becoming unviable.

“If we are going to run out of unused office space for conversion, it will [be] Britain’s metropolises that see it first.

“While the market is strong, we are seeing more and more developers testing the waters in secondary towns and cities where stock is still plentiful.”

‘We are now approaching a period of consolidation’

Charles Warrack, partner of office agency at Johnson Fellows said: “It’s not possible to say categorically if we could run out of unused office space to convert to residential.

“The dynamics of the market could be that there will always be a ‘least popular’ office building in any given market and this would always be a candidate for conversion.”

Rishi Passi, CEO and founder of Oblix Capital, added: “There’s little doubt that PDR has positively contributed to the UK’s housing stock, but we are now approaching a period of consolidation.

“This has been driven partly by a lack of offices suitable for residential living as well as a more conservative approach from high street mortgage lenders.

“This could result in a surplus of vacant office blocks that have to be re-worked through the traditional planning route to satisfy the demand from both end users and lenders.”

Henry Smith, CEO at Aitch Group, added: “…I think we have seen the vast majority of PDR take place that physically can.

“Since its introduction, PDR has mopped up inferior unused office space in fundamentally weak office locations [such as] towns/parts of town with low economic output or with weak transport links.

“In locations like this where office developments are no longer viable, PDR has certainly been more viable to landlords or developers and hence the majority of limited suitable office space has now been converted.”

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