Should You Invest In A Commercial Conversion? | moneyfacts.co.uk

Derin Clark

Derin Clark

Online Reporter
Published: 22/10/2020

Last month, decades-long planning regulations were changed so that those looking to convert a commercial property into a residential one now no longer need planning permission. This change, combined with the fact that many commercial landlords are struggling to find business tenants and the continuing residential housing crisis, means that buying a commercial property and converting it into a residential one could be a good investment opportunity.

What are the changes to the planning laws?

The new rules, which were introduced during September 2020, have removed the need to gain planning permission to turn vacant commercial properties, such as shops, into residential properties. As well as this, builders will no longer need the normal planning application to demolish and rebuild vacant and redundant residential and commercial buildings if they are rebuilt as homes.

How to fund this investment

Investors will likely struggle to get either a commercial or residential mortgage on the property when it is initially purchased, as such a bridging loan will likely be the best option. Moneyfacts.co.uk spoke to Michael Strange, managing director of Funding 365 Limited, who explained that he is expecting lending for this type of investment to be a huge growth area for the bridging industry over the coming years. As well as this, Strange revealed that this would be the type of project his company, and likely many other bridging lenders, would be happy to take a risk lending to.

According to Strange, the process of getting a bridging loan for this type of investment should be straightforward, although he advises investors to speak to the local council before approaching a bridging lender to see if it is a project that will get approval.

Is now a good time to buy a commercial property?

The Coronavirus has accelerated the trend that has seen shoppers move from high street shopping to online shopping. This has resulted in many city centre shops closing down and landlords struggling to find new businesses to lease the property. As a result of this, it is forecast that the price of commercial buildings will fall. During July, the Office for Budget Responsibility (OBR) published its Fiscal sustainability report, which stated that: “In our central scenario, commercial property prices are assumed to fall by 13.8% in 2020-21 and to rise slowly thereafter leaving them 5.5% lower at the scenario horizon than in our March forecast.”

As well as this, the pandemic has seen a sudden shift from office-based work to working from home. Although the working from home trend may not continue when the pandemic is over, it is expected that businesses will look to occupy less commercial space as working will become more flexible, with many workers choosing to work from home some days and in the office on others. Indeed, the Q2 2020 RICS UK Commercial Property Survey found: “93% of respondents anticipate that businesses will look to scale back their office space requirements to some extent in the coming two years on account of the increase in remote working during the pandemic.”

Clearly, while many commercial landlords are struggling to find business tenants, those looking to buy a commercial property may find that prices will fall over the coming months, which could result in good investment opportunities for investors.

What are the risks involved with this investment?

Converting a commercial property into a residential one comes with considerable risk. For example, investors will still need to gain approval from the local council to carry out the conversion. To get this approval, investors will need to contact a building control body (BCB), which can be done through the council, to ensure the work complies with building regulations. More information about building regulation approval can be found on the Government website.

Once the conversion has taken place, the investor also has the risk of not being able to sell the property or attracting tenants. In addition, this is a very hands-on investment, where the investor will need to oversee the project and will involve investing time as well as money.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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