Office-to-residential conversions – Opportunities under the Labour government

Introduced in 2013, permitted development rights led to an uptick in office-to-residential conversions and recent amendments made to The Town and Country Planning (General Permitted Development) (England) Order 2015 (‘GPDO’) have made office-to-residential conversions even more accessible for developers. This blog looks at the recent changes and discusses the opportunity these present to developers.

the changes

The most recent reforms to the permitted development rules came into force in March 2024 under which two key restrictions on office-to-residential conversions were removed.

Firstly, the requirement that the property must have been vacant for a continuous period of 3 months immediately preceding the application has been removed. Secondly, the limits on the size of the space that may be redeveloped have been removed (previously, the permitted development rules could only be utilised if the floor space to be converted was under 1,500 square metres). The removal of these restrictions broadens the opportunity for developers looking to convert out of use and/or lower value office buildings to residential use.

Making an application for prior approval

A developer seeking to utilise the provisions of the GPDO will need to make an application to the local planning authority for prior approval. The property to be converted must have been used as one of the uses under Class E of the GPDO (which includes offices) for at least 2 years before the date of the application. Some other limitations include that the property must not be a listed building, nor be in an area of “outstanding natural beauty” or within a National Park.

The requirement for prior approval means that the planning authority will need to be satisfied that certain elements of the development are acceptable before work can commence. In the context of office-to-residential conversions this will include considerations such as the impact on transport, contamination risk and the impact of noise from commercial premises on the intended occupiers of the building.                                 

However, the advantage of the prior approval process over the usual process for obtaining planning permission is that it is much less onerous. When considering an application for prior approval, the planning authority cannot consider any matters not referenced in the GPDO and once an application is submitted, the planning authority should make a decision within 8 weeks.

opportunities under the new labour government

One obstacle to relying on permitted development rights to facilitate office-to-residential conversions has long been Article 4 directions. These directions can be made by Local Planning Authorities under Article 4 of the GPDO whereby permitted development rights can be withdrawn in certain areas.

There has long been speculation that the Labour party, which has historically advocated against office-to-residential conversions, would seek to reduce the number of office-to-residential conversions by either encouraging a wider use of Article 4 directions or by scrapping the legislation entirely.

However, the new government has since pledged to build 1.5 million homes in the current parliamentary cycle. This is no small feat, especially considering that only 1 million homes were delivered in the past 5 years between 2018-2023. Furthermore, on 31 July, the government published its proposed reforms to the National Planning Policy Framework (‘NPPF’), which called for limiting the use of Article 4 directions to situations where an Article 4 direction is ‘necessary to avoid wholly unacceptable adverse impacts’ or ‘necessary to protect local amenity or the well-being of an area’. The NPPF has gone even further, stating that any Article 4 direction should only be made based on robust evidence and should only apply to the ‘smallest geographical area possible’. Clearly, office-to-residential conversions will feed into the government’s agenda perfectly and help it towards delivering its target.

the commercial landscape

So if the government seems to be happy to give way to more office-to-residential conversions, what do the markets say?

The pandemic led to most workplaces shifting to a hybrid working model, which, in turn has led to the underutilisation of office space. This shift has led to residential property significantly out-performing offices in terms of their financial performance in various areas. For example, the value of residential property per square metre in the South East and East of England was on average 53% higher than the value of office premises per square metre in June 2024.

In addition, Lambert Smith Hampton found that there is approximately 12.9 million square feet of unused office space in the South East and East of England which could be the ideal target for office-to-residential conversions.

Conclusion

The combination of reforms to the permitted development rules, a favourable policy background and the changing market for offices all suggest that the opportunity is there for the taking for developers to add to the supply of housing by adding value to underutilised assets through office-to-residential conversions.

further information

If you have any questions about any of the issues covered in this blog, please contact Daniel Clyne  in our Real Estate & Construction team.

about the authors

Daniel is a Partner in our Real Estate team. He advises clients on commercial real estate transactions with experience acting on acquisitions, disposals, asset management, pre-lets and lettings, financings and developments.

Dorottya is a trainee solicitor, currently in her third seat in the Dispute Resolution team.