May 13, 2014
The Government's recent budget announcement on the proposed further relaxation of the planning law to convert industrial property into residential further emphasises the Government's commitment to reform the planning system and encourage development.
So what impact are these initiatives likely to have on the commercial property market and Thames Valley towns such as Reading?
Since May 2013 the change of use of offices to residential without planning permission has been permitted subject to certain conditions and we are now seeing the results. Once redundant office stock are now viable redevelopment schemes with hoardings erected advertising forthcoming apartments.
In Reading, a prime example of this is Kings Road. A once distinct part of Reading's office supply is likely to become a predominantly residential area.
The change of use under permitted development of offices is seeing stock taken out of the market at a time when there is increasing demand for office space in the Thames Valley. Tenant demand is however sometimes different to that which is available hence why these building are being converted. Demand is focused on well specified buildings. Some developers are now predicting a shortage and have started speculative development. An example of this is M & G who have started speculative construction of Forbury Place in Reading town centre.
The conversion to residential of buildings in less demand may not be restricted to the office market. The Government's current proposal to extend this permitted development right to retail could see similar results. Furthermore, the Government stated in the Budget that they may extend this to industrial properties. At this stage, neither are in force but owners should start considering their options.
Looking into the future, there are two potential results for the commercial property market. Either there will be less commercial property or landowners will develop to meet demand.
In reality, the property market is no different to any other market or product. Trends and requirements change over time and the market must adapt. The Government's planning initiatives are simply facilitating this adaption potentially at a faster rate.
In the short term this redevelopment will remove stock from the commercial market and may force a rise in commercial property rents. In the long term, if the market has the demand it is likely to be replaced with modern equivalents.
Whether as a result of the Government planning initiatives or a return of business confidence, the commercial property market is changing. There has been a recent surge in activity in the Thames Valley commercial market since the start of the year and Reading is a prime example where increased activity and demand has seen rents start to increase as tenant options decrease. The balance of negotiating power is slow shifting from tenants to landlords.
For more information, please contact our property expert David Barden at 07799760323 or email at email@example.com.