Workspace shortage as office to residential rights made permanent ⁰

The British Council for Offices (BCO) has warned that the UK needs to avoid a free-for-all following the government’s announcement it is to make permanent the relaxation of planning rules on the conversion of office to residential properties. According to recent BCO research, changes to the Permitted Development Right for office to residential conversion led to over 6 million sq ft of office space in England being converted to residential use in 2014. Some of the most concentrated commercial property markets have been significantly affected by this. In London, office to residential conversions are now occurring at a faster pace than ever before with 2.7 million sq feet of office space lost to residential conversions since May 2013. London Assembly Member Nicky Gavron questioned the decision to extend the scheme saying that it will reduce the availability of affordable workspace required by start-ups and small businesses in the capital.

Richard Kauntze, Chief Executive of the British Council for Offices, commented: “When we released research earlier this year which showed that 6 million sq ft of office space was converted to residential in England in 2014, we argued that it was time to take stock and consider the impact of the permitted development right.

“While the PDR can certainly contribute towards much needed housing, a cautious approach is required. Ultimately the increase in office-to-residential conversions since the introduction of the PDR represents a growing challenge in how to satisfy office demand.”

Although a substantial proportion of PDRs have not yet been implemented, as much as 10.4 million sq ft of office space could be lost in the capital by May 2016 if all current prior approvals for conversion were to be implemented. While the BCO research estimates that only approximately 25% of prior approvals in the capital are being converted into residential, the research shows that the PDR is having a clear ‘drag effect’ on the growth of office stock, as any new office development needs to replace office stock lost to conversion, as well as providing new space.

In order to assess how the right has directly impacted the loss of office space, the BCO’s analysis looks at areas of London which have a mix of exempt and non-exempt areas from the office-to-residential PDR. Exemptions from the planning rule have been granted in exceptional circumstances in 17 locations in England where the Government accepted that the PDR would have an adverse economic impact on the area.

The BCO’s analysis concludes that office losses in London are most prominent in those areas not protected by an exemption from the PDR. Islington is a Borough that strongly reflects this; office-to-residential conversions are occurring at a rate of 5.2% of current office stock under the new rights in the non-exempt area, equating to a loss of over 228,000 sq ft of office space since May 2013.

This represents a significant loss of office stock, and a stark contrast to the conversion rate of only 0.5% in the area exempt from office-to-residential conversions and therefore operating under the normal planning process. Such a high conversion rate presents a challenge for the Borough, despite new developments in areas such as Kings Cross boosting new office stock.

Crucially, it is not only in the Capital where the PDR is having a material impact on local office markets. In Bristol, 870,000 sq ft of office space has been granted prior approval for residential conversion, with the research finding that around 50% of approved office-to-residential conversions have been implemented in the city since 2013.

Miles Gibson, Head of UK Research, at CBRE said: “This research shows that the office-to-residential permitted development right is having a significant ‘drag’ effect on the growth of office stock in parts of London. Although there has been much less of an impact outside London, our research shows that some areas are ‘running to stand still’ on the provision of new office space. That said, more homes have been created by this policy than the Government originally expected. ”

The report’s Executive Summary can be viewed here .