Leading property expert, JLL, says the government’s new housing bill stating permitted development rights (PDR) will be extended to include demolition of old office blocks, could add millions to the value of buildings in Birmingham and other key property hotspots.
The Bill is set to make office-to-residential conversions a permanent fixture of the planning system.
Michael Brough, residential director at JLL said: ” From a residential point of view the demolition of buildings as opposed to refurbishment will increase the value of these buildings dramatically. Build costs of refurbished stock are often cost prohibitive when you consider the average cost of refurbishment is £150-£175per sqft as opposed to £100-£125per sqft for new build. However the main benefit will be through the increased efficiency of a purpose built building”’.
“Refurbishing a commercial building into a residential building is currently like trying to push a square peg through a round hole. These buildings were never designed to be lived in and consequently the use of space is extremely inefficient – representing a net to gross of c.70% as opposed to a new purpose built buildings efficiency of 85-90%. As an example, in a building of 100,000 sqft this broadly represents a loss in net floor space of 30,000 sqft as opposed to 15,000 sqft on a new build scheme which at a sales rate of £300 per sqft in the city centre market represents a gain in Gross Development Value of £4.5 million. This reflects in very broad terms an increase of circa.£1-£1.5 millionm on the land price.”
Brough further comments. “Prior to the release of the new Housing and Planning Bill, PDR opportunities have not attracted the national housebuilders as they prefer to concentrate on new build developments due to the unforeseen development costs associated with refurbishing buildings. Consequently the new bill will bring another tier of developers in to the mix who will now be seeking out PDR sites”
Permitted development rights were due to expire in May 2016. The statement from the housing minster clarifies that the changes will now be permanent and that developers of existing schemes have three years to complete schemes from the date of prior approval.
The changes will also enable the change of use of light industrial buildings and launderettes to new homes, and have clarified the timeframe for development.
Jonathan Carmalt, director office agency JLL added: “Whilst we welcome more housing being encouraged in the city centre by making buildings more viable, we also have a dwindling office supply which needs to be addressed.
“Over 1m sq ft of office stock has already been lost to alternative uses since the start of 2012 including residential, hotels and free schools. The prospects of letting remaining office stock in the city centre has greatly improved and clearly the dated office stock remaining is not in infinite supply.
“Converting poorer quality offices into housing would largely depend on the values generated by alternative uses as compared to a much improved office market experiencing good rental growth. Some of the biggest gains we suspect will be locations outside of central Birmingham where the office market isn’t such an overiding factor.”