Commercial to resi becoming increasingly popular
The rise in the number of conversions from commercial to residential has become increasingly popular, according to Colin Sanders, chief executive at Tuscan Capital.
As people left cities in search of more space and during COVID, many buildings became unoccupied as their use as an office block become unnecessary. In order to encourage conversions, the government introduced new rules facilitating the conversion of commercial premises in England into homes. The changes meant that full planning applications were not required, and homes instead were delivered through a prior approval process.
From April 21, 2021, unused commercial buildings were granted permitted development to be converted into homes via a fast-track prior approval. In addition, a fast track for extending public buildings, such as schools, colleges and hospitals was introduced.
As part of the new rules, councils were only be able to turn down applications on limited grounds, including flooding risk, noise pollution and inadequate natural light.
“We saw a lot of this type of activity in 2021; it was definitely a trend which formed during the second year of the pandemic,” Sanders said.
Sanders went on to say that clients were assessing the performance of their assets and they were looking to use Tuscan Capital’s change-of-use product to convert those that were vacant or not providing a decent yield.
“In the majority of cases they received a favourable opinion from their local planning authority and were able to make the transition,” he added.
Sanders believes that the turnaround in fortunes for the investor could be quite substantial, as he said many commercial buildings have high residential potential.
“I know of a failing shop which had a deep footprint - the premises went quite far back which was not necessarily that beneficial, while it had four flats above it,” said Sanders.
He explained that the commercial landlord was able to halve the shopping space and alter the residential configuration.
“They were left with a much greater residential area and a smaller but better presented shop, which provided a better return on half the retail space,” he added.
This type of activity has been seen across the country - for example BLEND Network funded a town centre rehabilitation project, in order to turn a redundant office block in Great Yarmouth into 30 residential flats at the back end of last year. The conversion has helped retired people as well as those taking advantage of the government's Help to Buy scheme.
Prices for the two-bedroom flats, which are listed on Rightmove, range from £135,000 to £180,000, with the one-bedroom homes ones selling for £95,000 to £110,000.
Morgan Bowker (pictured), head of bridging and development finance at Vincent Burch Mortgage Services explained that pre-pandemic, the retail sector was always in the headlines.
“Independent retailers, alongside big-name brands, were struggling to compete with online giants such as Amazon,” she said.
Amazon was able to outperform its high-street counterparts on almost every level during the pandemic. The rise in the number of online orders helped Amazon achieve record sales, which it then spent large amounts of on coronavirus-related investments - like safety gear for workers and its internal testing initiative, called Project Ultraviolet.
Bowker believes that COVID-19 exacerbated the divide between Amazon and retail shops, meaning many were forced to cut costs, often by closing shops in what were once bustling high streets.
However, she noted that while this situation left many of the high streets empty, it did present an opportunity to convert these unused commercial buildings into residential properties.
“Following these changes, we have seen a number of our established clients take advantage and enquiries have been increasing from other investors looking for a bite of the cherry,” she concluded.