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Office-to-Resi rights extended indefinitely – boom or bust for developers?

21st October 2015

Some clarity at last for developers this week as the government confirmed the office to resi permitted development rights (PDR) will be made a permanent change. This will be detailed further in the Housing and Planning Bill.

Initially, the relaxation of the law to enable office property to be converted without permission into residential was introduced in 2013 with a deadline of May 2016. Ever since there have been rumours that the change in law would be made permanent. Although in July there were reports this was put on hold as the government was under pressure from councils over the dwindling number of office stock, especially as the number of employees in London is due to rise (the Greater London Authority Employment forecast employee numbers would rise by 11% between 2014 and 2020.)

Without clarity the price of properties was impacted and this was especially noticeable over the summer as the deadline grew closer. However, at this time, for those willing to take a chance and risk an investment, prices were dropping. The main risk factor in these investments was the possibility that the rug would be pulled out from under the developer’s feet and midway through a conversion into residential use the confirmation would come that the PDR were not being extended. This could have left the developer with either a rush job to ensure the property was converted in time, or the risk that the property might be held up through the planning process.

Thankfully this much-needed clarity has now been given and developers can progress with their office to resi conversions, confident that the status won’t change.

So what does this mean for the market? While residential developments are needed and this market is very much booming at the moment, there remains controversy around these permitted development rights and this isn’t likely to go away.

Last month a report from the British Council for Offices found that more than 6 million sq ft of office space in England was converted to residential use in 2014 under the PDR. London has felt the brunt of this office loss - in Islington alone office conversions are occurring at a rate of 5.2% - this is compared to a rate of 0.5% in a borough exempt from PDR.

Nevertheless, there is no denying that the PDR have helped to create much-needed homes with a welcomed element of flexibility, especially in the capital, with the change in policy providing 7,600 new homes so far.

However, local authorities will be looking to carefully protect their office stock with Article Four Directions if they feel the number of offices in their borough is dropping too quickly. It has also been announced this week that councils now have until May 2019 to apply for exemption from the permanent office to resi rules.

This is something developers need to be mindful of when planning new residential projects.

James Lawrence, Partner in Mundays' residential development team article published in Prime Resi on Wednesday 21st October

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