In a significant policy shift, Michael Gove, the Secretary of State for Levelling Up, Housing and Communities, announced proposals to change Class MA Permitted Development Rights (PDR) so that current floorspace and vacancy requirements will be removed, allowing commercial buildings of any size the freedom to be converted into new homes. The changes come into effect on 5 March and open up a range of possibilities for asset owners seeking to repurpose their properties.
A Brief History Of PDR
PDR have been around since 1948 and subject to variations, in virtually every decade since. In 2013, the Government first introduced amendments to PDR that allowed the conversion of offices to residential uses without the need for full planning permission, with further amendments to these rights in 2017. This move aimed to streamline development processes and encourage adaptive reuse.
In 2021, following changes to the Use Classes Order, Class O was replaced by Class MA and the PD rights were curtailed, applying only to buildings below a specific threshold (1,500sqm / 16,146 sq ft per building).
The 2024 Proposals
As of 5 March, the landscape has shifted once again with the removal of some of the PDR restrictions alongside the Government’s renewed commitment to brownfield development and proposals to encourage Local Authorities to streamline bureaucracy and prioritise the transformation of underutilised spaces.
This shift is noteworthy because it increases the options for proactively addressing the development and repurposing prospects of a substantial volume of secondary office space, impacted by changing occupational patterns, requirements in a post pandemic and more environmentally conscious world. What what does this mean for property owners?
Key Considerations For Asset Owners:
- Easier Path to Conversion: Asset owners can explore larger commercial-to-residential conversions more easily. Lower bureaucratic hurdles would present the potential to allow quicker decision-making. The removal of the vacancy requirement allows Prior Approval to be obtained before a building becomes vacant thereby reducing the associated holding costs.
- Cost Considerations: While planning hurdles may be eased, financial realities remain. Up-to-date cost plans are crucial. Inflation, cost of debt, and funding yields all play a role in determining project viability. Margins must align with market expectations.
- Building Feasibility: Some office floor plates lend themselves well to residential conversion, but many modern buildings are configured with much deeper floorplates, which make it difficult to access natural light without expensive lightwells, punching through floorplates, etc.
- End Sale Values: Ultimately, the success of any conversion project hinges on the achievable end. Asset owners must assess the demand for residential units in their specific location. Factors like amenities, neighbourhood appeal, and market trends remain critical.
- Clarity Needed: Despite the positive changes, further clarity is essential. Asset owners will require detailed guidelines on the revised planning structure. How will local authorities interpret the new rules? What safeguards will exist to ensure quality conversions?
- Protections: What protections, if any, might be put in place to limit the impact of the changes on business parks and groups of commercial property often in disparate ownership. Could this see a review and increase in Article 4 Directions, possibly in short order?
The Benefits Of These Changes
- Increases the flexibility in asset management strategy for qualifying properties, meaning property owners can adapt more easily to changing market conditions and investment opportunities. Facilitates an upswing in values of qualifying buildings, especially secondary office stock affected by the current economic cycle
- Expands liquidity for qualifying buildings, broadening the pool of potential buyers thereby facilitating quicker transactions and potentially higher property values
- Contributes to addressing the housing crisis
- Helps accelerate the rate of repurposing of commercial stock, a key target of British Property Federation's (BPF) “Towards Net Zero Report 2023”, and the construction industry’s net zero carbon goals.
- Will improve the feasibility and deliverability of town centre regeneration proposals, by supporting a higher base threshold for Existing Use Value (EUV) in any planning viability case.
Conclusion
In summary, the changes to the Permitted Development Rights present a significant opportunity for creative repurposing of commercial spaces. These amendments not only offer asset owners greater flexibility but also play a crucial role in addressing the housing crisis and revitalising town centres.
It remains essential to approach conversions with a holistic view. Beyond planning, financial viability and market dynamics will determine the success of these ventures – all of which Cushman & Wakefield are well placed to assist with.
