Is converting commercial buildings to residential use a viable proposition?

Converting commercial buildings to residential use would seem an ideal solution to a housing shortage, especially with and a glut of underused commercial buildings, but how easy is it?

The planning regulation changes have made it easier to convert commercial buildings to residential use, but the process is not without its difficulties.

Since 2015, with the introduction of The Town and County Planning (General Permitted Development) Order, the process of changing the usage of commercial buildings to residential was simplified under the planning system, aiming to encourage the more efficient use of buildings.

Between then and now, well over 50,000 new residential buildings have been successfully converted from their previous commercial use. With the Covid pandemic and its aftermath, many more commercial buildings, mainly offices and some retail buildings, now find themselves vastly under used, representing a large pool of potential conversions.

Property investors with some development experience may see opportunities here, whether that be a closed down pub, high street shop or department store, town centre offices, former bank buildings or suburban offices, all ripe for conversions into swish modern apartments.

Its not all plain sailing

Although the opportunities have broadened with the introduction of these permitted development rights, there are complexities that would-be property developers may not be aware of. It calls for thorough research before embarking on such a project.

It’s especially important to check with the planning authorities first, to think about the requirements of building control (the physical specifications of any conversion), and to fully comply with all the legalities before committing to a purchase and embarking on such a project.

We’ve seen it all before on TV, those property auction programmes where someone buys a church building, a warehouse, an old cinema and converts them into trendy new apartments. You read newspaper and magazine articles on the trend and you get inspiration from what you see on your travels; that old majestic bank building with the agents board prominently displayed, just crying out for rejuvenation, conversion to a new life.

Testing the market

The last thing you want to do is pour your money into a folly that will never let. Market research is absolutely vital before making any investment commitment. You have gut feel and experience of course, and it may well be a common sense judgement, but it’s not enough – yes the building is in exactly with right location to attract your tenants, the dimensions look right and you could get it at a bargain price. But that’s not enough without further in-depth research.

You should not relay on your own judgement here. The people with the best feel for a local market are sales and letting agents who day-to-day deal with properties, sales and lettings locally. Of course, when you are eyeing up a prospect you are wary about alerting the competition, but better that than landing yourself with a folly.

Having establish there is a healthy market for your completed project you need to go about researching the feasibility of the conversion:

1. Does your concept come within the bounds of permitted development? There may be other complications such as a listed building or it’s within a conservation area, which may require sensitive and restricted conversion – consult your local authority first.
2. Measure the building and do some rough plans of your ideas.
3. Consult an architect or trusted experienced builder to see if your ideas will work in principle – you need to be pretty sure your plans will be approved, so consult the planners and building control at this stage.
4. Secure your purchase either through auction, private treaty or open market sale.
5. Prepare your proposed detailed designs and consult with the local building control department or a private consultant.
6. Regardless of permitted development rights there may still be a requirement to get approval either simply through a pre-application (pre-app) or a full planning application, or you may simply need a lawful development certificate.
7. Finally, what is the existing ‘use class’ of the building?

Use Classes

There may be exceptions but most conversions involving business use classes will need some sort of official approval, even with permitted development rights, but perhaps not a full planning approval.

Local authorities sort their buildings into use classes B, C, E, and F, with their sub categories:

• B covers general industrial buildings, factories, storage, warehousing and distribution centres.
• C covers residential buildings, private homes, hotels, hostels, care homes etc.
• E business services, such as shops, offices, nurseries.
• F covers local community and learning centres, museums, libraries, community halls etc.
• ‘Sui Generis’ means ‘in a class of its own’ and in this context the term refers to buildings which are in a unique class falling outside of the defined classes.

There were changes to use classes in September 2020 when several classes were revoked, including Class A, B, and D. See a full guide to use classes here.

Here is a list of buildings which typically are appropriate for conversion to residential (C3) use:

• Most Class E building, retail shops, restaurants, nurseries, and offices.
• Agricultural buildings
• Banks
• Gyms
• Dentist offices
• Medical Centres
• Hair Salons
• Betting offices
• Casinos
• Launderettes
• Pubs

Don’t “jump the gun”

Even with permitted development rights conversions will still need prior approval before work commences, even if this is just obtaining a “lawful development certificate” and building control approval.

Converting an existing building into another use often involves complex changes to make sure you stay within building regulations specifications, rooms sizes, access corridors, staircases, fire exits, building materials specifications etc. You will need professional help with all this to draw up acceptable plans, meeting these specifications.

Why convert a building?

Most commercial buildings naturally lend themselves to conversion as they are generally quite spacious and often ideally located for domestic occupation. With the change in the market, post Covid, with much more home working, these projects may be even more attractive as vacant office or industrial space, offering spacious rooms, become more common.

With reduced rental potential for commercial units, and the need to invest more money into them to meet coming energy efficiency standards, many landlords are looking to off-load them. Often this can be at very attractive prices. At the same time, increasing demand for housing means that these commercial to residential conversions are buoyed by a healthy residential rental market.

Affordable housing conversions

Responding to an All-Party Parliamentary Group inquiry about understanding the feasibility of converting empty commercial property into affordable housing, property agent’s trade body, Propertymark says it believes there is potential for commercial to residential conversions, however, it warns of several obstacles to a wide-scale programme of conversions:

“Responding to an All-Party Parliamentary Group inquiry about understanding the feasibility of converting empty commercial property into affordable housing, Propertymark believes there is potential, however, warns of several obstacles to a wide-scale programme of conversions,” says Propertymark.

The APPG for Ending Homelessness and the APPG on Housing Market and Housing Delivery inquiry sought views on the barriers and potential of utilising the growing number of empty commercial buildings. Propertymark members from their commercial division stated that “primarily, many conversions would not be financially viable or suitable for residential use even if a conversion was made.”

To achieve APPG objectives, encouraging developers to take on projects, conversions and developments would have to be financially viable, and they would need to be is suitable locations for community needs.

To to ensure projects lead to quality homes being built, Propertymark says it needs, “the establishment of a set of clear achievable but high standards that converted properties would have to meet. This will prevent poor conversions that do not provide an adequate standard of living.”

Propertymark also highlights issues with the planning system, citing instances when planning approval is granted inconsistently. “If conversions were to be feasible on a national scale, we would like to see clear guidance provided to local authorities so they can approve conversions more consistently.”

The agent’s trade body says it has “long advocated for a range of measures to improve the housing supply crisis and very much welcomes this joint inquiry to explore converting commercial property as a potential solution. There are certainly instances when conversions can be suitable, however, we have made it clear in our response that the suitability of the property for conversion must be reviewed on a case-by-case basis.”

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