Developers are pulling back from converting central London offices into homes as the housing market in the capital slows.
Conversions of central London offices into homes under contentious “permitted development rights” have slumped in the past year, while withdrawals of such applications have increased sharply, according to figures from Colliers International, a property agency. Permitted development rights, or PDRs, to convert offices to housing without full planning permission were introduced in 2013 and made permanent in 2016 as a way to help address the housing shortage. However, they have raised concerns over the depletion of office stock and creation of sometimes poor-quality dwellings. Developers must meet only minimal conditions in order to proceed with PDR conversions, and avoid the scrutiny involved in securing planning permission. In 2014, developers began work on 873,000 sq ft of conversions of former offices in central London, according to Colliers. In 2015 the figure dropped to 534,000 and by last year it was just 178,000. Meanwhile, about 343,000 sq ft that had been set for conversion will instead remain as office space after developers withdrew their applications to convert during 2016. That figure was up from 69,000 a year earlier. “This was very much in vogue when central London residential values started to motor, but now there’s an oversupply of high-end residential in central areas and when developers sit down and do the numbers, actually, office space is looking more promising,” said David Hanrahan, director and co-head of London offices at Colliers. One example is Anchorage House, an office building in London’s Docklands. In 2014 its owners, Criterion Capital, lodged plans to redevelop it into more than 400 homes using permitted development rights. Criterion then adjusted their plans, applying to replace it with a new and larger residential building, before selling the site on to LaSalle Investment Management, who have said they will instead refurbish the building as offices aimed at technology companies. In the office market, vacancy rates have risen since last year’s vote to leave the EU but remain “significantly below trend”, Colliers said. In the City about 3.8 per cent of office space was vacant at the end of 2016 while the figure for the West End was 4.1 per cent and in Docklands 5.1 per cent. The previous boom in PDR conversions had been another limiting factor on office supply. As early as 2014, developers warned that the borough of Westminster had already lost 5 per cent of its office space. While the city continues to grapple with a shortage of affordable housing, the rush to build new luxury homes has led to an oversupply. In late 2016 analysts at Molior London warned that “starts have been too high for many years” in inner London. They said this resulted in about 11,000 unsold homes under construction, almost double the figure from two years previously. In the broader London housing market, a slowdown in central “prime” areas, in evidence for the past two years, appears now to be spreading. According to Hometrack, house price growth across the city is “running at its lowest level for four years and set to slow further”.
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