The passage of the General Permitted Development Order (GDPO) in 2015 opened avenues for commercial property developers looking to make use of vacant commercial space. For many investors, this change represented an opportunity to get into residential real estate and meet a national housing need that has yet to catch up with demand.
The UK Government’s motivation to allow the conversion of properties stemmed from an awareness of the demands of a growing population, coupled with a recognition that some buildings would serve communities better if they were to find new uses. Collectively, all conversion work contributes to the UK Government’s desire to make the best use of existing brownfield resources and address housing supply.
Understandably, many property investors have expressed their interest in converting commercial property for residential use. While the potential for good yields exists with such an investment, it is still necessary for people to learn how to go about the process successfully and avoid potential pitfalls.
It is for this reason that Paul Smith, Touchstone Education co-founder, has established a platform to teach individuals about commercial property investments. Mr Smith is well known for his knowledge in these investments, with his insights and courses often changing students’ perspectives on the matter when they hear him speak about it.
Through the commercial property course offered at Touchstone Education, aspiring investors learn aspects such as valuation, the importance of a commercial surveyor, finding a property, deal-exit options, and safe commercial sectors.
The Process
One of the major aspects that guide an investor’s push to convert a commercial premise into a residential unit is gaining planning permission. Building without permission can lead to financial and legal issues, so it is best to follow due process. Applications for planning permission are submitted to a local planning authority department, with applicants expected to pay fees for their requests.
Thanks to Permitted Development Rights (PDRs), not every commercial conversion will require full planning permission. PDRs are granted by Parliament and allow various buildings, categorised by various classes, to undergo conversion without planning permission.
Retail premises such as shops, for example, fall under Class A, while workshops, offices, warehouses, and factories constitute Class B. Class C properties include hostels, residential institutions, and hotels, while properties in Class D include assembly and non-residential institutions. Under these broad categories are subclasses.
The exceptions allowed under PDRs are subject to changes. Some of the more common conversion examples, such as converting light industrial premises to residential houses, can be done without full planning permission. However, even where permission is not required, investors are advised to ensure they have the necessary approval from their local planning authority.
The Preparation
Before an investor decides to undertake a conversion project, they have to assess the viability of the premises. Several factors determine whether the conversion is worth the investment, including the state of the property market and the location of the premises. With a thorough understanding of these (and other) aspects, an investor can make an informed decision.
Undertaking a commercial property conversion requires ample resources as these projects can sometimes come with unexpected costs. Investors need to consider this, as funding avenues have also changed with the amendments to planning laws. Where previous conversions were funded by short-term development finance, developers have chosen a range of hybrid financing options since the GDPO was introduced.
Despite the work involved in assessing viability and sourcing the finances to undertake such a project, conversion of commercial properties can yield high returns for investors. This is because many commercial sites tend to be in desirable locations, something that residential tenants prioritise. The commercial property market can also be saturated in many regions, meaning it has lower returns than investments in residential property.