New figures have shown Simon Morris that government changes have decreased the supply of office space available in England, providing a possible opportunity to commercial property developers.
Solving housing shortage
As I’ve stated here on the Simon Morris blog multiple times, the UK is dealing with a housing shortage. The country has been faced with this problem for some time, and in 2013 the government tried to solve it by introducing the Permitted Development Right.
Basically, the Permitted Development Right policy relaxed planning regulations. It allowed residential property developers to convert empty offices into homes. However, it has since come to light that a large number of these conversions involved occupied offices, according to the Financial Times.
Lost office space
Earlier this year I showed how the implementation of the Permitted Development Right affected the UK office space sector at large. I noted on the Simon Morris blog that 11 million square feet of office space in the UK has been converted into residential units since May 2013. In contrast, research conducted by CBRE for the British Council for Offices has now indicated that the establishment of the Permitted Development Right led to the construction of 7,600 residential properties in 2014.
Also, the CBRE study indicated that England lost a staggering 6 million square feet of office space to residential property development throughout 2014. The Permitted Development Right was only designed to be temporary, but now it’s expected that the government will announce the extension of the policy in autumn and if it does, England could lose even more office space.
Impact on London
CBRE made it clear that the introduction of the Permitted Development Right has had a serious impact England’s most profitable office sector, London. The research revealed that 40% of all office space-to-residential conversions in 2014 took place in the UK’s capital. It further suggested that if council-approved conversion plans go ahead, London may lose over 10 million square feet of office space.
This could provide commercial property developers with an interesting opportunity. As the UK’s economic hub, London needs office space. If the Permitted Development Right continues to rob London of it, commercial property developers may be enlisted to ensure the UK capital has enough office space to support its vibrant economy.
Meaning for residential market
This may also lead investors to believe that now is the time to invest in England’s, especially London’s, residential property market. The London market could be particularly profitable, especially as the emergency summer budget could be set to boost development. However, Simon Morris would advise investors to be cautious and conduct extensive research before they pursue this strategy, to ensure that it’s right for their circumstances.