The number of retail-to-residential conversions has fallen by 17 per cent in the last year in England, despite government backing and growing retail vacancy rates, according to law firm Boodle Hatfield.
While shop conversion rates can be expected to rise during periods when the retail industry struggles, new figures indicate that the total number of retail properties approved for conversion into residential property has dropped from 453 in 2017/18 to just 376 in 2018/19.
There are also reports that some councils are restricting conversions of this kind, despite new development rights from the government, designed to speed up the process, according to Boodle Hatfield.
A cause for concern
This comes as the government has made increased efforts to meet housebuilding targets and to help new homebuyers onto the property ladder, at a time when Britain’s housing shortage has reached a critical point.
With the number of renters and buyers dramatically outweighing the number of homes available on the market, many are concerned about the low volume of properties being converted for residential purposes. More conversions would also solve the problem of long-term empty retail units.
The firm referenced new British Retail Consortium data in their report, which showed that town centre retail vacancy rates hit 10 per cent in April 2019, the highest level seen since April 2015. They added that the low volume of conversions was particularly concerning, given the sharp rise in vacant retail space in recent years.
What’s the problem?
The fall in conversions is being driven in part by local authorities restricting developers from using ‘Permitted Development Rights’ (PDR), a system which allows developers to convert commercial property for residential use, without a full planning application, according to Boodle Hatfield.
The PDR system was introduced in 2013 to incentivise developers to convert disused commercial property into housing, as a means of helping reduce the shortfall in new homes being built. However, some local authorities have now started to restrict the use of PDR for converting shops into housing, as they wish to protect their stock of retail property in the hope that the retail market will rebound, says Boodle Hatfield.
Dennis Ko, real estate partner at Boodle Hatfield, commented: “With the number of retail units standing empty around the country, it’s surprising that a growing number of councils are opposed to seeing new residential units replacing them.”
He added: “While it’s important to ensure the right mix of residential and commercial property, especially in town centre areas, disincentivising developers from creating new homes is unlikely to be the best way to do it.”
Areas with restrictions on retail-to-residential conversions include the London Borough of Hackney, including high streets in Dalston, Stoke Newington and Finsbury Park.
The London Borough of Waltham Forest also has a retail-to-residential conversion restriction in place across the whole borough, and the London Borough of Kensington and Chelsea has specifically restricted conversions of launderettes into housing.
The long-term impact
The current shortage of housing supply has contributed to rising rents in many parts of the country. This will only continue over time, as new properties are not made available for the residential market at the pace it requires, says Boodle Hatfield.
On the other hand, some have criticised PDR for allowing converted homes to be built below the minimum standards for size and the number of windows that new-build units must comply with.
Boodle Hatfield says that local authorities must aim to strike the right balance between protecting their commercial property stock, maintaining standards of housing and discouraging developers from building new homes.