The drive for new housing in the UK has never been higher. There’s a housing so-called ‘crisis’ after all, and successive governments have made it a headline goal to ensure that their are enough new homes for people and families to live in.
It’s been a qualified success so far, but aside from the occasional McMansion estate stamped into the countryside on the outskirts of existing towns, or shimmering freshly built skyscraper in the middle of a city, how many new developments have you actually seen?
Probably not to many, we’re willing to bet. Certainly not enough to make up the 150,000 new homes being brought into existence every year.
And there’s a reason for that. A lot of new homes aren’t actually built. They’re converted. They’re change of use. Office blocks, commercial premises, warehouses.
Economic uncertainty drives change, and over the last few years, businesses have been creeping out of city centres, and abandoning their traditional high status, high rent locations in favour of areas with better accessibility and lower rents.
Not all businesses, certainly, but enough to ensure that more than 12,000 ‘new homes’ built in 2016 are actually located in former office space.
It makes sense to buy city centre commercial premises with an eye to converting into lettable luxury apartments – but it may not be for everyone.
City centres tend to have excellent public transport links, and the fact that some businesses are moving to the ‘burbs doesn’t mean that they all are. There are still going to be thousands of potential tenants who (for some reason) want to live a literal stone’s throw away from their place of employment. And then there’s the night life.
And why not?
So what’s stopping you from buying office buildings wholesale and refitting them as condos?
There are a few reasons you may be put off.
The first is that good candidates are hard to find at a reasonable price. While it’s possible to source a building suitable for converting into 20 or more flats for as little as £500,000, the chances are you’ll be stuck on an industrial estate in Hull. No one lives in Hull by choice. If you want a good property in a good location, you’ll be paying through the nose.
The second reason is that they’re classified as commercial premises. This means unless you can persuade the local authority to grant a change of use, you’re not actually allowed to have anyone living there.
Having spent millions on your new purchase, it would be galling to discover that you can’t actually do anything with it.
Of course, you could always apply for change of use before buying your building, but then you run the risk of other property developers putting in an offer on the premises. With permission in place to develop as residential, the value of any commercial property is going to go through the roof.
So, you’re sitting there scratching your head right now. What are you going to take away from this? Is there a lesson we’re trying to impart here? Are we advising you to do something?
No. While there’s certainly an awful lot of money to be made, investing in commercial property as anything other than commercial property is risky. That’s why it’s typically done by overseas investors and major players.
Small time landlords should stick to small time projects.
Image credit: Mikey