Developers look beyond London for PDR

As permitted development opportunities dry up in London and the South East, Allsop is reporting a rise in regional permitted development lots coming to the auction room. Its residential sale next week (30 March) will include six lots with PDR, including the most expensive property in the catalogue. The office building in Altrincham, Cheshire, which is occupied by commercial tenants on short-term leases, has PDR for 32 flats and a guide price of £2.6m-plus. Other PDR investments in the catalogue include an office building in Watlington, Oxfordshire, with permitted develop­ment granted for eight one- and two-bedroom flats, guided at £650,000-plus. The government widened the scope of PDR in 2013 for three years, allowing offices to be converted into flats without planning permission – and then, after some uncertainty, made this change permanent last year. A developer or investor can gain PDR on an office block from the local council, as long as they can show it is feasible to use it as flats. It must be developed within three years. Richard Adamson, partner and auctioneer at Allsop Residential, said: “There is a finite amount of offices that are available and that are actually suitable for residential conversion. The supply of this stock is now much lower than it was two or three years ago, especially in London and the South East. Consequently, there appears to be a shift from London to other areas.” Transport Many offices have a car park and are close to public transport links, which helps to reassure the local authority that a residential use would be sustainable. Adamson added: “Well-seasoned professionals have been prepared to take a more optimistic view of whether it [PDR] will be approved.” Adamson said there was no sign yet of the market for PDR investments cooling. “There may well be a tipping point some time in the future in some areas, when office investment values outstrip the residential values. “The challenge for us is that there is plenty of demand for offices with PDR or with potential, but there isn’t as much supply as there was a couple of years ago. When we are instructed and the properties come to the market, they are incredibly popular.” Richard Auterac, chairman and auctioneer at commercial auction house Acuitus, said auction buyers were also continuing to target commercial properties to trade on once PDR is obtained. “There is a swathe of buyers who don’t seek to develop themselves. Often a buyer takes a property without PDR and sells it on with PDR.” He said Acuitus had also sold lots with residential development potential – such as shops with flats above – for as much as 50% above the valuation. “Traditionally you did not look at the upper floors [of a mixed-use property] as valuable, but now that is where the value is. The price is enhanced by the residential potential,” Auterac said. Negotiation Andrew Batterton, a partner at law firm DLA Piper, said that one advantage of PDR for developers was that it carried no affordable housing requirement. In cases where a developer wanted to submit a full planning application, which is needed to change the external fabric of a building, he said PDR was sometimes being used as part of the negotiation. “The PDR can be used as a fall-back in an argument [with a local council] over a planning application.” The view from Peterborough William Rose, head of Savills’ commercial team in Peterborough, said PDR investment opportunities were now thin on the ground in the city. Some 600,000 sq ft of office space in Peterborough has been converted into flats since 2013, which is 15% of the total. Most of the properties are in the city centre, but some are out of town. “It has peaked in the past year, and it has been a significant proportion of our business in that time,” he said. “Clients are asking if they should invest and refit or go down the PDR route.” “A lot of it is secondary space and that’s why it has gone. We are getting to the point where the easy targets have been sold.”