Convert Shops to Residential Spaces for a Strong Property Portfolio

In the wake of the coronavirus pandemic, many commercial properties became, and have remained, vacant. Following a request for people to “work from home if they can” by the UK government in 2020 and early 2021, many businesses have continued to allow staff to work from home, either permanently or on a flexible basis. As a result, 2021 brought with it the “biggest rise in vacant shops in over two decades” as well as “the sharpest increase in empty offices since the finance crisis,” according to RICS. 

It’s safe to say that the pandemic has reshaped our towns and cities, particularly the high streets, as many people opt for online shopping over traditional high street browsing. Even though the majority of restrictions were lifted in July, research shows that shoppers were “hesitant” to return to high streets, and footfall dropped 34% on pre-pandemic levels. The vacancy rate is undeniable, with one in seven high street shops being empty. Meanwhile, as consumer habits change, online spending is at a record high. 

While the data proves troubling for retailers that have struggled to transition to selling online, the changes bring with them many opportunities for landlords and developers who are keen to inject life back into the high streets. In fact, some developers have already worked to transition empty shops and offices into homes thanks to changes in permitted development rights introduced by the UK government in 2020, with further amendments in 2021.

So, if you are planning to redevelop a commercial property into a residential space, and want to learn more about permitted development and how to finance your development, keep reading.  

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Turning shop into homes under permitted development

Permitted development rights cover building development, such as certain types of conversions, extensions and Change of Use, which you can carry out without the need for planning permission. This means that developers can transform vacant buildings into affordable homes, without the red tape that comes with the planning process. 

In 2020, the government introduced significant changes to permitted development, making it easier for landlords to redevelop certain properties into other developments, but there are significant areas to consider before you break ground. 

So, while it might be harder for developers to transform large-scale office buildings into high-income apartments, there is still ample opportunity for conversions that will make all the difference to the government “Build Back Better” campaign. 

How permitted development rights have changed

Despite recent changes, permitted development rights have always covered the conversion from shops into housing. The previous permitted development rights included Class M (for ground-floor shops), Class G (upper floors of shops), and finally, Class O for offices. 

In 2020, the UK government introduced Class E, which covered a wide variety of commercial buildings including retail spaces, including shops, cafes, restaurants, banks, offices, nurseries and more. And, as we expected, the government followed this up by introducing permitted development rights for the whole new class, with some limitations. 

However, this merging of classes brought with it some confusion at first, especially as Class M, Class O and Class G previously had varying size limits and other restrictions. This is where Class MA comes in, which expands the rights of permitted development to the whole of Class E use buildings. This allows developers to convert Class E into much-needed new homes, without the need for planning consent.

While this is generally good news for developers, it’s worth considering the rulings that came in 2021 confirmed that there would be a size limit of a maximum of 1,500 square metres for the conversion of a Class E building into C3 a residential property under Class MA. 

There are several reasons behind this ruling. Firstly, the government is keen to ensure that, while there is a housing crisis, any new homes built under Class MA must meet certain standards. Ideally, new homes should be affordable and built in parts of town in which people want to live. In addition, there must remain a balance between residential and commercial spaces, particularly in town and city centres. Otherwise, we risk upsetting the balance and losing our high streets altogether. 

So, with that in mind, let’s talk about the considerations for turning shops into homes under permitted development rights. 

Class E permitted development considerations for homebuilders

Along with the size limitations we mentioned above, there are a few other considerations for your Class E permitted development. 

  1. The commercial building must be vacant for at least three months before it falls under permitted development
  2. The property must have been Class E for a minimum of two years
  3. The developer must consider a number of safety measures, including flood and contamination risks. This also includes any potential disruption to the local community, and how it will impact existing residents - a vital consideration for built-up areas like high street development. 
  4. Tenant and landlord consent may be required if the land is subject to an agricultural tenancy.

So, while permitted development provides a significant opportunity for developers to transform unused shops, into income-generating housing, there is still a lot to consider before you kick off any project. As long and you take the above into consideration, and choose a development that brings value to the community, this could be a fantastic opportunity to “Build Back Better” and create housing developments that will reinvigorate areas that have been left struggling in the wake of the COVID-19 pandemic. 

Once you have established that your project qualifies for permitted development, it’s time to get in touch with the expert team at Rangewell to find the finance. 

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Article 4 directions as a barrier to the conversion of shops to homes

In some parts of the UK, local authorities have introduced Article 4 Directions, which essentially remove permitted development rights for a number of reasons. Typically, this occurs in areas of key interest to a local authority, such as town centres, tech hubs and employment centres. 

In the case of an Article 4 Direction, you will need to submit a detailed planning application - even if your project meets all of the requirements for permitted development rights. To find out if your development falls under Article 4, contact your local authority directly. 

Other considerations for retail to residential development

The redevelopment of unused buildings like retail spaces into residential properties could solve both the problems of empty high streets and the national housing shortage. In fact, we need 300,000 new homes per year to meet the rising demands. The UK government has struggled for many years to build enough housing for the growing population, and while COVID-19 has devastated the high street, this could be the perfect opportunity to create new residential buildings in highly sought-after locations. 

When it comes to turning shops into homes under permitted development, there are a few more building regulations to take into account. Ideally, your project should conform to the Nationally Described Space Standards (NDSS), a list of standards designed to guide developers into building liveable homes, putting a heavy focus on areas such as storage, sleeping, bathrooms and food preparation. 

Furthermore, you should familiarise yourself with the Housing Health and Safety Rating System (HHSRS), which denotes the health and safety stands of a home. For example, residential properties should be free from hazards such as mould, excess temperatures, asbestos and leads. 

Of course, as a developer, generating an income is your highest priority. However, if you fail to take into account all of these considerations, the project may end up costing you more than you bargained for with fines and penalties. So, when it comes to turning shops into homes, there’s a wealth of potential, but also a lot to consider before you take your first steps.

Location, location, location

Even if your development meets all of the above criteria, you must consider the viability of residential development in your area of choice. If you are planning to turn a retail space into residential property development, can you be sure that this is an appropriate place for people to live? Does the location have good public transportation, and are there any environmental concerns that might impact your build? 

This is particularly relevant when it comes to town centre regeneration, as historically these locations have been almost exclusively used by businesses and the influx of new residents will impact the local community, as well as the balance between commercial and residential space. However, if you choose the right location for your development, you could provide ideal housing for key workers and other people who benefit from living close to the town and city centres.

You may also be planning to utilise the allowances for vertical extensions under permitted development. As long as the property has not previously been extended vertically, you may be able to add a vertical extension to a shop to create a better living space, for example. This allows for developers to make better use of space in already built-up areas, like town and city centres.

To determine whether your project falls under permitted development and aligns with other planning law and planning policies, contact your local planning authority. Once you get the green light, it’s time to get in touch with Rangewell and start your finance journey

Finance for converting shops into homes

Thinking of redeveloping vacant shops into much-needed homes? To ensure you have all the support you need, making arranging finance a priority. By currently budgeting and thus financing your development, you negate the risk of any delays or even having to abandon the project midway through.

At Rangewell, we have access to the whole of market, including specialist lenders, so we can help you to find the perfect finance product to meet your needs. To get started, simply get in touch with our expert team of advisors today and tell us about your project, including your budget and plans, and we’ll work with you to create a finance plan that’ll support you turn your ideas into reality. 

Get started with your shop to home conversion project today and contact the Rangewell team. 

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