Are We Running Out of Office Space?

By Simon Morris On Tuesday, April 21 st, 2015 · no Comments · In ,

A new report has suggested that offices are being converted for alternative uses throughout the UK. This has led Simon Morris to ask; are we losing office space and what does this mean for investors looking to plough capital into this lucrative sector?

The UK office space boom

The UK has recovered from the recession. The BBC’s GDP tracker shows that the nation’s Gross Domestic Product grew 2.6% in 2014; the biggest rise since 2007.

The revision of the UK’s economic fortunes has led to a boom for its office property sector. A report from global commercial real estate leader DTZ shows that a record £5.5 billion was invested in the office sector in the first quarter of 2015. This is the strongest start to the year this market has racked up since 2006.

Permitted development right threatens UK office space supply 

However commercial property consultancy Lambert Smith Hampton’s annual Office Market report for 2015, suggests that the UK’s supply of office space is under threat. It showed that over 11 million square feet of office space in the UK has been converted into residential space since May 2013.

This was the month that the Department for Communities and Local Government enacted the permitted development right (PDR). Introduced for an initial period of three years, it allows developers to convert office spaces for residential use. A consultation in 2014 suggested extending the right beyond its May 2016 deadline, but the government hasn’t confirmed if this will happen.

Office space lost across the UK

Lambert Smith Hampton’s national head of office agency, Tony Fischer, explained how this phenomenon has played out in different areas across the UK. He was quoted by Planning Resource saying that “London has been a focal point for projects to convert offices into other uses, particularly outer London, where residential values dwarf those of offices.”

Yet Fischer also noted that “many regional markets have also seen substantial activity following the PDR – approximately eight million square feet of office stock has left the market outside of central London since May 2013.”

What does this mean for investors?

This could suggest that office space supply is dwindling across the UK. What does this mean for investors? It could mean two things. If supply goes down, demand goes up. This could make it more expensive to enter the UK’s office space market. However it could also push office rents up.

There are a number of risks attached to investing in all areas of the UK property market, including office space. If you’re thinking about investing in the office property sector, you should look at Simon Morris’ guide to property investment options. This guide aims to arm first time investors with the information they need to ensure they make a low-risk investment that has a good chance of generating significant returns.

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