Should the UK prioritise constructing more homes or more office space? That is the question I've been pondering this month.
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div>Should the UK prioritise constructing more homes or more office space? That is the question I’ve been pondering this month.
In an ideal world of course, one wouldn’t have to make a choice between the two. However, lately this issue has risen to the fore, with figures published by the Royal Institution of Chartered Surveyors (RICS) this week showing that commercial space in the UK has declined at its fastest rate since it started collecting this data in 1998.
The report by RICS found that developers are converting an increasing number of offices into homes to keep up with the demand prompted by the current housing boom. This has been driven by the relaxation of planning rules (specifically Permitted Development Rights) that the Government introduced last year, which makes it easier to convert commercial space into residential housing.
There are undoubtedly advantages to this relaxation of rules. Firstly, it means it is likely to reduce the number of empty and unused offices that have failed to find commercial tenants for one reason or another. It also means that conversion rather than demolition now becomes the more favoured route.
These commercial buildings can now be turned into affordable housing for first time buyers, for example, to help with the housing shortage. The country needs more housing and more housing means either more new builds or more conversions – the latter often being quicker and causing less local disruption.
But on the flip side, we have to consider the very real likelihood that this will drive up rental rates as the supply of office and retail space for businesses declines. The RICS report says that in London in particular, conversions are leading to more elevated rental expectations. And across the UK, RICS expects to see growth in rents going forward. With the potential for rising rents, it might be a good time for business owners to look into the possibility of buying their office space.
Interestingly, 50 per cent of chartered surveyors said the conversion of commercial units to residential space is only moderately impacting on availability of commercial space in their area, while just under 20 per cent said it was having a substantial impact.
The impact of reducing office space could be particularly detrimental to SMEs. Reducing the availability of office space impacts upon business growth and employment, which can then affect other local businesses and town centres as companies are forced to take out of town space.
Concerns have been raised by local authorities who are now putting in place measures to protect office space, as they are concerned about its impact on their commercial centers. For example, Westminster Council will require developers that are seeking planning permission to convert offices into homes to provide affordable office space alongside this, if any space suitable for SMEs is being lost in the process of conversion.
It’s a difficult balancing act and I don’t envy those local councils having to make the choice between the creation of residential or commercial property.
By Gareth Claxton, Head of Commercial Lending at Aldermore Bank
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