A few thoughts on Gove’s office conversion plans
29 February 2024
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The best part of Michael Gove’s – otherwise very meagre – recently announced planning reforms is that they are going to make it easier to convert office buildings into residential housing.
Such conversions are already possible: there is a fast-track, light-touch planning process for them, which is far less onerous and time-consuming than the conventional one. But at the moment, an office has to be vacant for at least three months before an application for conversion can be made, and the conversion area must not be larger than 1,500 m2. Under the new rules, these limitations are going to be removed.
This is an eminently sensible idea. As it happens, it matches a proposal which Prof David Starkie made on this very blog last November, so maybe the conspiracy theory is true, after all, and Britain really is run by “Tufton Street”.
Prof Starkie’s starting point was the observation that office occupancy rates remain well below their pre-pandemic level, and given that the shift to working from home is an acceleration of a trend which predates the pandemic, they are unlikely to ever fully recover. The implication:
“[F]or […] the likes of Croydon, Ealing or even Canary Wharf and particularly in towns and provincial cities such as Reading, Leeds or Bristol, the financial balance might well be moving in favour of conversion on a major scale. […] Importantly here government might be able to play a part by encouraging local authorities to consider seriously this development opportunity, and […] easing some planning restrictions so that the opportunity is firmly grasped.”
That seems to be happening now, so credit to Gove where it’s due.
And yet.
The same forces which have caused a shortage of residential homes in Britain have also caused a shortage of premises of other kinds, including offices. The graph below shows office rents in Europe’s capitals and major economic centres. It turns out that London is in a league of its own here.
Annual rent of prime office space, € per m2, 2022 or latest available year
Of course, when it comes to the conversion of offices into residential property, what matters is not how London office rents compare to those of Paris or Frankfurt, but how they compare to London residential rents. The London-Paris or the London-Frankfurt ratio is relevant to an investor who is thinking about relocating from London to Paris or Frankfurt (or vice versa), not to a property developer who is thinking about converting London offices to London flats.
But the fact that London remains such an expensive place to do business in does not suggest that this is a city with a huge surplus stock of empty office blocks, even if the situation is less tense now than it used to be pre-Covid. What it suggests is that London has an across-the-board shortage of premises of any kind, be it flats, offices, retail space, hospitality or otherwise.
In this context, office-to-residential conversions are mostly shifting premises from one shortage sector to another. That is the right thing to do, if the shortage of residential housing is more extreme than the shortage of office space, but it can only do so much.
The situation may be different in other cities, and even if it is not: every little helps. The problem is that Gove seems to see these conversions as an alternative to building more, when they really cannot be more than a supplement.
Such conversions are already possible: there is a fast-track, light-touch planning process for them, which is far less onerous and time-consuming than the conventional one. But at the moment, an office has to be vacant for at least three months before an application for conversion can be made, and the conversion area must not be larger than 1,500 m2. Under the new rules, these limitations are going to be removed.
This is an eminently sensible idea. As it happens, it matches a proposal which Prof David Starkie made on this very blog last November, so maybe the conspiracy theory is true, after all, and Britain really is run by “Tufton Street”.
Prof Starkie’s starting point was the observation that office occupancy rates remain well below their pre-pandemic level, and given that the shift to working from home is an acceleration of a trend which predates the pandemic, they are unlikely to ever fully recover. The implication:
“[F]or […] the likes of Croydon, Ealing or even Canary Wharf and particularly in towns and provincial cities such as Reading, Leeds or Bristol, the financial balance might well be moving in favour of conversion on a major scale. […] Importantly here government might be able to play a part by encouraging local authorities to consider seriously this development opportunity, and […] easing some planning restrictions so that the opportunity is firmly grasped.”
That seems to be happening now, so credit to Gove where it’s due.
And yet.
The same forces which have caused a shortage of residential homes in Britain have also caused a shortage of premises of other kinds, including offices. The graph below shows office rents in Europe’s capitals and major economic centres. It turns out that London is in a league of its own here.
Annual rent of prime office space, € per m2, 2022 or latest available year
Of course, when it comes to the conversion of offices into residential property, what matters is not how London office rents compare to those of Paris or Frankfurt, but how they compare to London residential rents. The London-Paris or the London-Frankfurt ratio is relevant to an investor who is thinking about relocating from London to Paris or Frankfurt (or vice versa), not to a property developer who is thinking about converting London offices to London flats.
But the fact that London remains such an expensive place to do business in does not suggest that this is a city with a huge surplus stock of empty office blocks, even if the situation is less tense now than it used to be pre-Covid. What it suggests is that London has an across-the-board shortage of premises of any kind, be it flats, offices, retail space, hospitality or otherwise.
In this context, office-to-residential conversions are mostly shifting premises from one shortage sector to another. That is the right thing to do, if the shortage of residential housing is more extreme than the shortage of office space, but it can only do so much.
The situation may be different in other cities, and even if it is not: every little helps. The problem is that Gove seems to see these conversions as an alternative to building more, when they really cannot be more than a supplement.
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