Office conversion boom boosts London housing delivery

Data from EG reveals London saw another 10-year-high for home completions via office conversion in 2017. Looking solely at central office markets, which are heavily covered by permitted development rights exemptions, almost 1,200 homes were completed through conversion projects last year – representing an annual increase of 10%. The West End remains the primary focus for conversion projects – accounting for 35% of unit completions last year – and has commanded 47% of the total unit delivery since this trend began rapidly accelerating in 2014. The closest market rival in this regard is neighbouring Midtown – which accounted for 25% of the unit delivery in 2017, and 20% of all conversions since 2014. While the West End is home to a plethora of buildings that are easy to “flip” back to residential use (having been converted to offices down the decades), the bulk of new unit delivery in the submarket actually comes from projects that seek full demolition-and-rebuild – such as Westminster Quarter (formerly Ashley House), SW1P, and the new Chiltern Place (formerly International House), W1U. This is the case throughout London, as 81% of new unit completion in 2017 came from schemes in which the existing office provision was demolished, and a new residential structure created in its place – almost an exact percentage flip from as recently as 2015, when 76% of unit completions came as a result of straight refurbishments of the existing building envelope from office use to residential. While our forecast completions for 2018 reflect only a minor fall from 2017, it is likely that this could herald the beginning of a slowdown in the office-to-residential phenomenon in central London. EG’s latest in-house data on new-build prime sales indicated that 2017 volumes were boosted by an average price drop of 2.4% from £2,177/sq ft to £2,124/sq ft – which, when you add in escalating construction costs, has a magnified impact on the viability of new projects. In addition to those changing market dynamics, there is also the significant factor of the mayor’s rules on affordable housing. Many of the permissions currently being built out were permitted in 2013 and 2014 – prior to Sadiq Khan allowing new schemes that comprise 35% affordable housing to be fast-tracked through planning – and, perhaps crucially, they are not required to show viability assessments. The overwhelming majority of conversion projects under development do not adhere to this threshold, with many of them resulting in new homes that are entirely for private sale. Additionally, Westminster Council’s recent firmer stance on affordable housing will clearly have a decelerating effect on the figures, given the dominance of the West End submarket in office conversion. Speaking at last year’s LREF, council leader Nickie Aiken told the audience that “developments should make provision for levels of affordable housing, either on site or close by, that meet our expectations.” Latest EG data on all London residential construction indicated that 28,000 private units started construction in 2017 – the third year in a row that this has been the case. Main image:John Nguyen/JNVisuals/Rex/Shutterstock To send feedback, e-mail graham.shone@egi.co.uk or tweet @GShoneEG or @estatesgazette