Cutting the red tape around office-to-residential conversions could make housing projects 30 per cent cheaper to develop, according to cost consultants.
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Communities secretary Eric Pickles unveiled the new rules last week, saying he wants empty and underused offices to be ‘swiftly converted’ into housing to make the most use of pre-developed land and address the UK’s housing shortfall.
According to the AJ’s sister publication Construction News, Pickles said the move would help create construction jobs and regenerate town centres by increasing footfall in high streets.
Some in the industry suggested it could boost subcontractor work in areas such as cladding, heating, lighting and acoustics.
Developers and contractors hope the change will help speed up redevelopment and avoid often costly planning conditions such as affordable housing, community infrastructure levy and section 106 obligations.
EC Harris head of residential Mark Farmer said the saving ‘can be anywhere between zero and 30 per cent below the cost of a new-build residential equivalent’.
But he also said it will depend on the specific rules for external changes to buildings, adding that most developers would still look to optimise values by demolishing existing office buildings and completely redeveloping.
EC Harris’ 2012 prime residential pipeline report showed that just 2.6 per cent across £38 billion-worth of schemes are planned as conversions.
Mr Farmer estimated around £250m to £500m of additional sales values on the back of the change, based on a low number of modern major office buildings that would be suitable for ‘internal only’ conversion.
He added there may be “nervousness from many regional developers” about the appropriate level of town centre residential development after the “massive oversupply issues” in 2007-2008 and ongoing problem of mortgage availability or rental affordability.
Styles & Wood chief executive Tony Lenehan told Construction News it was a ‘very encouraging move’ in both creating work that otherwise would not have been there and ‘breathing some life’ into cities at a time when office refurbishment projects are slow to come to market.
Lenehan, whose firm is currently on an office-to-residential conversion scheme in Scotland, said: “I would be surprised if pretty much every significant city in the UK did not start to create some of these projects.”
He said the move will make projects more affordable and will “improve the probability of work being done”.
Drivers Jonas Deloitte partner Mike Cuthbert said dropping the affordable housing and section 106 commitments fundamentally changes the economics.
‘From that perspective I think it is going to make a big difference and I can see quite a lot of developers taking this up,’ he told Construction News.
Cuthbert said there could also be a knock-on effect in terms of supply and opportunities for developers to provide new buildings. Higher residential values in London could also be a catalyst, he added.
A spokesman for Land Securities said any plans that help create more housing are a positive, but added that “it is not always practical to convert office or retail to residential, since some buildings will require significant redevelopment to make them fit for residential use.”
But Henry Boot group finance director John Sutcliffe warned against giving “carte blanche to developers to redevelop” and questioned the impact on rental values at an office park if some units “suddenly become residential”.
He added: “It would appear they [property owners] would be excluded from opposing the scheme, which is not good for protecting your asset value.”
Persimmon north division strategic planning director Peter Jordan told CN that any moves to address the housing shortage in the UK “can’t be a bad thing”.
He said housing is not just about numbers but about building the sorts of homes people want, in the right location and with the appropriate social infrastructure nearby.
Barratt London managing director Alastair Baird said it is a helpful move, particularly for its expanding London business, which should help current discussions with boroughs about redundant commercial buildings. But he said the physical conversion of the buildings will still require planning permission.
WSP UK director of sustainability Mike Sheehan welcomed the move but played down the impact, pointing out that mortgage finance remains the biggest constraint on housing.
Local authorities will also have an opportunity to seek an exemption if they can demonstrate there would be substantial adverse economic consequences.
Pros and cons – Mark Farmer, head of residential, EC Harris
- Deliver residential units to market quicker
- Depending on structural/cladding replacement, cost should be cheaper as you are saving foundations, frame and in some cases cladding
- Saving can be anywhere between zero and 30 per cent below the cost of a new-build residential equivalent
- Externally, most office buildings are not suitable for residential buildings in terms of windows, balconies, etc and recladding is often required
- Need to upgrade thermal insulation for residential use
- Most office floor plates from air conditioned post 1970s offices are usually very deep, which makes them unsuitable for residential units
What it entails:
- Wholesale replacement of central plant and equipment to different heating, cooling and electrical loading requirements
- Floor-to-ceiling heights in most offices would generate generous residential finished ceiling heights, so this is often a bonus
- Biggest issue is often structural alterations that may be required to make the original stair and lift cores work for a residential layout
Office-to-homes rules 'could save 30% on housing projects'
Office-to-homes rules 'could save 30% on housing projects'