Measures introduced by the government to allow offices to be converted to residential without planning permission led to the loss of over 6m sq ft of office space in England last year, a report has found.
The study by the British Council for Offices and CBRE said the loss of office space in 2014 through office-to-resi permitted development rights (PDR) compared to the previous record 3.7m sq ft of office space that was converted to residential use during the peak of the last commercial property boom in England in 2008.
With the government expected to announce an extension to the PDR, which expires in May 2016, in the coming weeks, the report showed the policy has led to a substantial loss of office space – but also the supply of 7,600 homes, which was more than originally envisaged.
According to the report, which the BCO said was the first in-depth assessment of the impact of the policy since it was introduced in May 2013, London has been particularly hard hit, with office-to-residential conversions now occurring at a faster pace than ever before with 2.7m sq feet of office space lost to residential conversions since May 2013.
Although a substantial proportion of PDRs have not yet been implemented, the report estimates that as much as 10.4m sq ft of office space could be lost in the capital by May 2016 if all current prior approvals for conversion are implemented.
In Islington alone, the report found that office-to-resi conversions were occurring at a rate of 5.2% of current office stock, equating to a loss of over 228,000 sq ft of office space since May 2013.
This in stark contrast to the conversion rate of only 0.5% in the area in the borough that is exempt from office-to-resi PDR, where the normal planning process applies.
The report said it was not only in the capital where the PDR is having a material impact on local office markets.
In Bristol, 870,000 sq ft of office space has been granted prior approval for residential conversion, with the research finding that around 50% of approved office-to-residential conversions have been implemented in the city since 2013.
While the report showed that the average growth of office stock (1.3% growth in stock per year) has usually outpaced any losses (0.19% of commercial office stock to residential use), currently demand for space was at a record level.
With high demand combined with low availability, the BCO said that many small-to-medium-sized businesses may be restricted in finding office space, which could have a major impact on local economies.
Richard Kauntze, BCO chief executive, said: “It is time to take stock and consider the impact of the office-to-residential permitted development right.
“While the PDR can certainly contribute towards much needed housing, a cautious approach is required. When, in 2013, the government consulted on the possibility of allowing the conversion of offices to housing without the need to secure planning permission, the BCO stressed the vital need to avoid a free-for-all.
“This is now more important than ever, as the increase in office-to-residential conversions since the introduction of the PDR represents a growing challenge in how to satisfy office demand.”
Miles Gibson, CBRE head of UK research, said: “This research shows that the office-to-residential PDR is having a significant ‘drag’ effect on the growth of office stock in parts of London.
“Although there has been much less of an impact outside London, our research shows that some areas are ‘running to stand still’ on the provision of new office space. That said, more homes have been created by this policy than the Government originally expected. ”