"In some cases, these properties have been adjusted to residential use, a move that makes a lot of sense given the ongoing housing shortage."
This trend was only exacerbated by the pandemic, when the nation’s shops were shuttered for months on end and shopping in person simply wasn’t a possibility for all but the most essential purchases.
But while our changing habits may mean that these premises are no longer required for retail, commercial landlords are increasingly recognising their potential for other uses.
Shifting to residential
In some cases, these properties have been adjusted to residential use, a move that makes a lot of sense given the ongoing housing shortage. This was often a straightforward move too thanks to the permitted development rules, which allowed many landlords to convert those properties into residential homes without having to go through the ordeal of organising planning permission.
The situation has changed somewhat however with changes to the permitted development setup in August which now caps the amount of space which can be converted from commercial to residential, per building, through the scheme.
In essence, it means that converting a large office block into residential properties is now a lengthier, more complicated and less attractive prospect.
Nonetheless, permitted development still offers potential for investors hoping to convert smaller commercial buildings, or even to rejig them so that they are mixed use, delivering both commercial and residential space.
A change of use
However, separate changes to the planning system are designed to make it easier for landlords to shift the type of commercial use conducted there, without having to go through planning permission.
In other words, that high street retail space which is no longer needed can be switched to a different form of business, like a pub, a gym or even a creche, in a relatively simple way from a planning perspective.
This obviously makes sense from the Government’s perspective - a fresh approach to the way a building is being used can revitalise it, and with it the surrounding area. Unloved and deserted high streets can swiftly become more in-demand, delivering the sorts of services that businesses and their customers actively want.
It’s an attractive idea for the landlords and property investors too, as suddenly a commercial space has a far wider range of options, and can therefore appeal to a broader group of potential tenants.
Delivering for borrowers
This trend, of converting high street retail properties into a form of property more in demand, is something we’ve seen first hand for some time at London Credit, having handled a host of cases where the investor wanted to raise funds in order to convert a commercial property.
In some cases, this has been switching it from commercial to residential use, but we have also seen a host of situations where they wanted to retain at least some of the commercial space - but convert it to address a different business need - while using the remainder of the space to deliver residential units.
It’s likely to be a trend that continues too. The impact of the pandemic has been such that the appetite for that business space is different, and may come from alternate industries which mean that the commercial space requires some form of redevelopment in order to fit their needs.
There is an inevitable complexity to these cases, which is why it’s so crucial for brokers to work with lenders with experience in this area. Brokers, and for that matter their clients, will want to have confidence that the lender understands the deal, grasps the fundamentals of what the borrower is trying to achieve, and can effectively serve as a valued partner on the project.
