Why office-to-residential permitted development has slowed

New government figures showing that office-to-residential permitted development applications have fallen by more than a fifth in the past year signify a drying up of attractive redevelopment opportunities, observers say.

Supplies: reduction in approval applications is attributed to diminishing stock of suitable conversion candidates
Supplies: reduction in approval applications is attributed to diminishing stock of suitable conversion candidates

When the Ministry of Housing, Communities and Local Government released its latest planning statistics last week, one figure in particular stood out. In the second quarter of this year, just 511 office-to-residential prior approval applications were submitted, representing a 22 per cent fall on the same period in 2017. Moreover, it was the lowest quarterly figure since the government started collating the metric in April 2014 (see chart below). So, what explains the fall in applications?

Private sector consultants and planning officers both say that, after five years of permitted development (PD) rights allowing such changes of use, there aren’t many offices suitable for conversion in the right locations. "The obvious explanation is that it’s a limited seam to mine and when they’ve gone they’ve gone," said Hugh Ellis, interim chief executive at the Town and Country Planning Association. Or, as Mike Kiely, chair of the Planning Officers Society, put it: "The easy, attractive ones have been done and the supply of sites and buildings is drying up. What’s left are in areas that don’t interest developers."

On the private sector side of the equation, Jason Lowes, partner in the town planning team at consultancy Rapleys, agreed. "PD right applications have broadly been on a downward trend since the system was introduced and this is likely to be due to a simple reduction in overall stock availability," he said. "As the floodgates opened, a large number of initial applications was always likely, as was the subsequent drop off as the most viable sites began to be converted."

Grant Leggett, director and head of the London business at Boyer Planning, concurred that the primary reason for the decline in numbers is due to diminishing supply of suitable office buildings. But he also pointed to a couple of other factors. Firstly, he said, there has been an increase in the number of councils, particularly on his patch, that are fighting back against the PD rights by seeking to put in place article 4 directions. "At the start, there were only a handful that did that," he said. "Islington had a go, but since then you’re finding them all over the place. We’re finding them in Hounslow, there’s one in Camden and now Brent is starting to have a go. Everyone is piling in to try to prevent the law from being used at all."

Secondly, in some areas the commercial office market is performing strongly relative to the residential market, thereby making conversions less attractive to developers. "The office market has had a bit of a resurgence recently and ironically that’s possibly because of permitted development," said Leggett. "If a load of offices in an area have been converted to housing, it created a supply and demand issue. In certain locations, the value you can get from an office will outstrip the value you can get for residential. It’s just pure economics."

Owain Nedin, asssociate director at consultancy Lichfields, said there are still opportunities for developers. "There will still be a flow of sites, particularly where building owners have been aligning leases to manage vacant possession," he said. "But there are likely to remain fewer sites going forward."

Leggett argued that the situation is pretty much what the government aimed for when it introduced the PD right in the first place, although there have been unintended consequences. "The government’s plan was to get rid of all the poor-quality offices and to convert them to residential in order to make better use of the land," he said. "But in some locations, quite a few good offices in important office locations got converted."

It’s a view that resonates with Paul Seddon, chief planner at Nottingham City Council and the current president of the Planning Officers Society. Initially, said Seddon, PD rights actually proved useful in repurposing his city’s tired office stock. "What’s happened in Nottingham is that we had an oversupply of poor quality, often vacant office floor space," he said. "It was depressing the market and the office-to-resi conversion route has largely mopped up all of that."

However, the situation has now reached a point where Seddon feels the planning authority needs to wrest back control. "I’m starting to think we now need to start making an article 4 case. It’s getting to the point where any more office-to-resi projects are going to be eating into the quality office stock that we need."

A similar situation can be found in Hounslow, where the council has implemented an article 4 direction spurred on by the green light for expansion at Heathrow Airport. "Since the Heathrow expansion got announced, Hounslow is now facing a massive shortage of office space," said Leggett. "There is more demand for office space, so they’ve brought in an article 4 to try to prevent losing any more offices."

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