With sites for residential development increasingly hard to come by, developers have in recent years focussed on actively looking at underperforming office buildings and converting them to capitalise on London’s housing crisis. Take 55 Victoria Street in Westminster, for example. A once dated 1980s office block, it now consists of 57 luxury New York loft-style apartments, ranging from studio flats to split-level penthouses, with banking and retail space on the ground floor. Office and warehouse conversions are nothing new in the capital, nor in cities across the UK, but the rate at which office space is being lost has resulted in the City of London Corporation having to take action.
Following the government’s proposal in January 2013 to alter planning laws to allow offices to change to residential accommodation without the need for planning permission, office space has been lost at a staggering rate. Since the law change, over 3.3m sq ft of office floor space has been converted to other uses within Westminster City Council’s boundary alone. The City of London Corporation argues that continuing at this rate will have a negative impact on the economic future of these prime commercial locations to the extent that it is now consulting on the permanent removal of office-to-residential permitted development rights from 31 May 2019.
But, for me, it isn’t just this latest proposed law change that will lead to a slow down in office-to-residential conversions, it’s because of the location themselves, and more importantly, the costs generated in those locations. Of course, keeping hold of office space is important for maintaining and growing the commercial viability of business-driven districts, but the cost of conversion in these areas takes the apartments out of financial reach for many. As with any development, whether it’s residential or commercial, get the location right and higher yields will follow. The trouble with central London office-to-residential conversions is that the location alone dictates the cost of the building acquisition and conversion, and ultimately inflates the sale value of the finished product. An influx of studio flats starting at £800k isn’t going to help solve the housing crisis. And perhaps more importantly in the Capital, sales of apartments at this price level are not what they once were.
So, who takes the risk? Of course, we still see a great number of overseas investors fuelling developments in the city, but there isn’t the sure-fire guarantee there once was that these expensive, city centre apartments are going to remain resilient to the fluctuations in the housing market. This is perhaps why investors are increasingly looking to the outer boroughs where there is more space and potential purchasers, both of which combine to provide greater opportunity.
For London, though, it’s all about the commute. In its hotly contested league table, Time Out recently named London the fifth most exciting city in the world, but long commutes and poor affordability prevented it from achieving a higher score. In commuting terms, there will always remain interest in these converted homes in central locations simply because of the location, but if supply dries up and costs continue to soar, these once-quick-fixes for housing could soon become a thing of the past.