Britain’s high streets have been one of the key financial victims of the pandemic, with a number of iconic businesses shutting their doors due to low sales and increased commercial pressures.
In response to the pandemic-fuelled economic downturn, the Government has launched Project Speed — an ambitious new deal designed to kick-start economic recovery across Great Britain. Project Speed has implications across several sectors, but perhaps the most significant development for the UK’s property sector is the introduction of a number of new property use classes, including the insertion of Class MA.
Implementing new use classes in infrastructure have been introduced to enable landowners to adapt to evolving landscapes. This news will be welcomed by many quarters, but particularly by property developers. The introduction of the new use classes – particularly Class E, is set to streamline several arduous processes, and will ultimately make investing in commercial property on UK high streets significantly easier and will increase potential to become more profitable as space works harder for investors.
We’ve seen an increase in the number of clients looking to take advantage of prime property in central locations. Most of our enquiries are from investors seeking to convert offices into residential to maximize their investment return in a post-pandemic landscape, says Paul Welch CEO of
largemortgageloans.com.
Class E: Converting an office to a residential home: as easy as 1,2, E!
Class E is a relatively new use of classes and includes a broad range of uses for commercial, business and service use. Class E now includes retail, food, some services, gyms, healthcare, nurseries, offices and light industrial use (i.e. processing or manufacturing activities which do not cause unusual fire, explosion, safety hazards or intrusive noise). Grouping together a wide variety of uses within a single use class means that property developers will be given the flexibility to move between commercial uses without the need to pursue additional planning permissions or permitted development rights.
In addition to this, the Government has also announced that from August 1st, in England it will be introducing a new permitted development right (‘PDR’) which will allow shops to convert to residential conversions (Use Class C3) if certain conditions are met. One of those conditions is the property must be vacant for three months before application. It is also worth highlighting that you cannot change the building in its entirety, but instead, convert part of the building. The ground floor must remain in commercial use, while the upper floors can be converted into residential units. You can read more about the new right here.
Property investors and developers can adapt like never before
The Government’s decision to cleverly eliminate the length planning obstacles from the property conversion process means that developers will be able to seamlessly readjust their portfolio strategy, enabling them to experiment and explore different industries and property types with relative ease. The emergence of Class E also encourages entrepreneurship and diversification amongst property developers. Now that they don’t have to ‘commit’ to a single type of property use, there is significant impetus for developers to diversify their portfolios.
If developers want to divest, the wide range of commercial uses included within Class E means that when and if they decide to resell it they could find that because the space has a wider net to pool new landlords from, and selling may prove significantly easier. If a commercial enterprise doesn’t quite come to fruition, many developers will discover that switching their strategy from ‘Retail to residential’ will present an attractive plan B.
This is particularly relevant in the aftermath of COVID-19: demand for office space halved during the pandemic, as workers transitioned to working remotely. Many office spaces will remain empty, as some businesses explore their employees working from home indefinitely. Class E allows landlords the flexibility to switch up their strategy, quickly converting office spaces into residential properties. This flexibility will reduce the possibility of unfilled tenancies, resulting in more regular, reliable income for property companies, and the ability to attract a wider range of tenants.
The ability to pivot from retail to residential property will help to solve the UK’s housing crisis, creating new homes in sought-after metropolitan areas. For example, the City of London has announced that they aim to create 1,500 new homes by 2030, 35% of which will be affordable, primarily through repurposing empty office spaces.
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Increased entrepreneurship within property developers also holds significant benefits for consumers. Local shoppers will see their high streets diversified and revitalised, with businesses more able to adapt to changing consumer habits and behaviours.
Since Class E allows businesses to move seamlessly between uses, it is likely that we will see multi-purpose venues becoming increasingly popular — for example, a business which functions as a shop during the day, but which turns into a restaurant at night. There may be more experimentation on the high streets, for example, ‘pop-up’ restaurants which may run for a limited trial period to test out logistics and local consumers’ appetites. As commercial tenants will now be much easier to attract, it is likely we will see new metropolitan hubs forming over the next few years, potentially reviving under-utilised areas, and encouraging consumers to invest more into their local economies.
Positive changes should result in increased footfall on the UK’s high streets, as consumers discover a growing range of diverse and vibrant businesses, more readily equipped to meet their needs and preferences. In many ways, Class E is a ‘win-win’ situation, offering substantial benefits to both property developers and consumers.
