Despite recent changes in the tax regime, designed to dampen aspects of the buy-to-let residential market, there has been no tailing off of demand for the conversion of existing office buildings to residential under Permitted Development (PD) Rights.
However, as a number of recent deals transacted by Hicks Baker illustrates, the change of use to residential is not inevitable. Much will depend upon location and style of property.
Hicks Baker recently sold 108 London Street, Reading, a 3,475 sq ft self-contained office building just south of Reading town centre.
Initially marketed as a lease, the building failed to generate sufficient interest on this basis. This, in our view, underlines that the majority of modern business occupiers are no longer looking for office space split over twp or three floors and their own front door - as was the case at 108 London Street, a building with 19th century origins.
A number of unsolicited freehold bids at levels significantly in excess of the building’s existing use value as offices prompted a rethink on the part of the owner, and the property was eventually sold for £885,000 (equating to £255 per sq ft overall) to Alchemist Estates.
However, it should not be assumed that all such buildings will automatically convert to residential. In Theale, Hicks Baker sold The Old Brewer’s House, part of the attractive Brewery Court development on the High Street to Lubrication Engineers International Ltd, for a price equating to £347 per sq ft.
Again, the owner initially contemplated letting the building but was persuaded to sell, having received an exceptionally attractive offer from the company who wanted the building for their own occupation. The company’s quest for a freehold office building had been a long one. Few options were available and they were frequently outbid by residential developers.
Whilst good demand for PD opportunities remains, it should not necessarily be assumed that any small commercial building will be lost to residential use due to this planning directive.
Clearly, each property needs to be judged on its merits and there are still companies out there who are looking to buy their own self-contained freehold premises.