An ongoing gap between supply and demand for residential property has led to an increase in the number of change of use applications of commercial premises.
Housing demand in the UK continues to grow, with the previous government having failed to reach its target of building 300,000 new homes per year to ease the pressure.
At the same time, the country’s usage of both commercial and residential property has shifted since the Covid pandemic, with more people working from home or on a hybrid basis, leading to a rise in unused office space. Meanwhile, the rise of online shopping has also taken its toll on town and city centres, with a growing number of empty shops.
It is therefore a positive move in many instances for these disused premises to be converted into residential property. Property investors are keen to snap up such opportunities, as the homes can then be let out to tenants, who are also significantly outpacing the number of rental homes available.
Private tenants are also more likely to want to live in a town or city centre, where amenities, infrastructure and transport already exist, while being close to a place of work. This means that landlords can find even greater demand for residential property in converted commercial spaces.
Commercial-to-residential property conversions
New research from Direct Line has revealed, via a Freedom of Information request, that there was a 63% rise in commercial to residential property change of use applications in England between 2021 and 2023.
This surge is likely linked to changing living habits after the Covid pandemic, as well as in response to the ongoing supply shortage across the UK, which led to strong appetite for homes in almost all parts of the country.
Instances where these conversion applications were approved also increased by 60% over the same period – down to a combination of a higher level of applications, as well as some easing of planning laws.
What’s more, Direct Line’s research shows that, by the end of this year, the number of change of use applications is expected to have exceeded 2023’s figure by around 20%, showing that the demand for such conversions from buyers remains high.
It can also be a more sustainable property investment, as the building structure and surrounding amenities are already present, meaning less outlay. Thanks to the growth in tenant demand for city and town centre living, this can also provide residential property landlords with a solid, long-term revenue stream.
Where are conversion rates the highest?
Perhaps unsurprisingly, the highest percentage increase of approved change of use applications has been in London. In the London Borough of Haringey, approved applications have risen by 100% between 2021 and 2023.
Other parts of the capital to have seen a particularly steep rise in conversions include London Boroughs of Enfield (up 90%), London Borough of Merton (89%), London Borough of Croydon (85%) and London Borough of Ealing (78%).
Other cities with a growing number of residential property conversions include Wakefield, with a rise of 70%, Bristol with 68%, and Sheffield with 58%.
An evolving market
The new Labour government has pledged to do more to get Britain building and shorten the supply gap, and this includes improving the planning process to get housing created more quickly. The party has highlight brownfield and grey belt land as a priority, which can be ideal space for new residential property developments.
Jonny McHugh, Head of Landlord at Direct Line business insurance, said: “The property market is constantly evolving and as demand for residential property continues to soar, it has increased the attractiveness of converting commercial units for domestic use. By converting underused commercial properties into residential units, landlords can help maintain their revenue streams and future proof their investments.”
Jeremy Leaf, a north London estate agent and former Rics residential chairman, said: “One of the reasons we’ve seen an increase in commercial to residential conversions is probably the acute shortage of stock, especially in areas of highest demand.
“Planning permission could be more straightforward and quicker for these properties than conversion of residential or even new build, bearing in mind commercial fulfils the ‘brownfield’ definition and should include existing infrastructure and services.”
