How to convert developments from commercial to residential

By: Emma Gettings

According to many funding property professionals, there are a number of elements developers need to consider when converting a property from commercial to residential.

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Property developers should consider the following before commencing with such a process:

1. What are the cost and funding implications? 

When it comes to turning commercial properties into residential developments costs are one of the most challenging estimates, which can often be misjudged as unforeseen issues. However, since the introduction of permitted development rights, there has been a change in the way these projects are funded.

In short, pre-extension, the vast majority of cases were vacant buildings therefore the commencement of construction was immediate. However, post-extension, more vendors are choosing to obtain permitted development and then market their properties without vacant possession.

Development finance lenders can assist on how to finance property development, offering funding short-term commercial property and development loans. There is also a variety of financing options for investment property available.

2. What is the resale value of the property?

As well as finding the right kind of funding and costs involved both the developer and the lender need to be aware of the resale values and rental yields once the scheme has been completed.

Additionally, knowledge of the local buy-to-let market is important. This may influence the type of residential accommodation, especially for HMOs so that they can deliver higher yields from a rental point of view.

Bridging loans require to be planned with the property development lenders in advance.

3. Is planning permission required?

Commercial buildings tend to have automatic rights to convert to residential without planning under permitted development.

Over the last few years, there has been an increase in the amount of office buildings being converted into residential properties due to permitted development rights.

Although permitted development is a much faster process due to the nature of the construction, there could be a lot of factors which may not have been taken into account such as; establishing any contamination issues if the building has been used previously as a petrol station etc.

4. Will there be any future changes to convert property from commercial-to-residential?

Looking at the impact permitted development rights have had on the housing market there are some arguments to suggest that in certain areas this has led to a shortage in office stock, but as a whole I think it’s served as a relatively creative solution to the housing crisis. However, some local authorities and the mayor of London have looked to clamp down on the use of permitted development rights to protect office space.

Source: Development Finance Today