"After a year of slumped demand for commercial, combined with the creation of new opportunities, the market is seeing more options at affordable prices."
It was hoped that this would kick start the construction industry and speed up recovery through the creation of new homes from regeneration of vacant and redundant buildings left lifeless from the pandemic.
The new policies allowed for more commercial sites to be converted to residential with fewer restrictions. In addition to the historic PDR scheme, developers would no longer need a normal planning application to covert even more commercial sites provided they were made into homes.
Whilst these changes created more opportunity for developers, they conversely led to an increase in substandard housing. Old industrial buildings and offices were converted into what were known as ‘permissioned slums’, allowing residential units to be built with little to no natural light and smaller than budget hotel rooms. ‘Terminus House’, a former office block in Harlow, Essex is one of the most known examples of this, having been described as a ‘human warehouse’.
Naturally, the negative press led to a rapid decline of commercial properties being purchased. This drop in demand combined with an increase in the number of sites available (particularly as businesses moved away from the high street) reversed the intended impact of government reforms. The Department for Levelling Up, Housing and Communities showed that the number of new homes fell 11% in 2021 (despite the government’s best efforts to enable developers), the lowest level since 2015-16. In part this will have been a knock-on effect of multiple lockdowns, but the figures also show that the government missed the mark of achieving its initial aim of ‘building better home where people want to live’. The disappointing results led to further easing of restrictions in 2021 as well as a review of the quality of housing changes encouraged.
In July 2021, it was announced that any building within Class E; shops, offices, gyms, restaurants, workshops and many more, qualified to be converted into residential even without planning permission. This time however, there were strong stipulations that meant all new homes created under permitted development must get natural light and meet minimum space standards.
This cycle over the past two years has led to a more recent shift in attitude. Anecdotally, we have seen rising demand for commercial bridging which has been met by the introduction of that product in our offering. After a year of slumped demand for commercial, combined with the creation of new opportunities, the market is seeing more options at affordable prices. In an era of rising costs where developer profit is being squeezed, going for new commercial sites might now be a better route to increasing developer profitability and make the most of building without planning bureaucracy. As a lender, we’ve also gone one step further in supporting the developer, reducing the arrangement fee against the initial commercial bridge and then onwards development, helping to make deals stack up even more so. As the industry starts to face new challenges, collectively we need to find ways to enable development, for us, it’s doing what we’ve always done, just better.
