Shed-to-bed conversions win few fans as PDR approaches

Living on an industrial estate might not sound appealing, but building residential units on former manufacturing sites is exactly what is being proposed to help to alleviate the housing crisis.

In October, a three-year permitted development rights (PDR) trial will come into force that is intended to make it easier for landlords to convert light industrial buildings for residential use and thus boost the supply of much-needed homes in the UK.

The idea of turning sheds into beds underwhelmed industry experts when Property Week wrote about the issue last September. Commentators doubted there would be mass take-up in any way comparable to the widely exploited easing of office-to-residential conversion rules. They pointed to the limit of 500 sq m (5,400 sq ft) on the size of each permitted development, the unsuitability of most sites and the potential for local authorities to veto any such plans under Article 4.

But now that PDR is imminent, has anything changed or are developers and councils still unconvinced?

Some local authorities certainly seem to be taking seriously the potential of such arrangements and have pre-emptively moved to block permitted development.

Council concern

“A lot of local authorities are concerned about this and have brought forward Article 4 direction, particularly in London,” says Claire Fallows, partner at law firm Charles Russell Speechlys.

London boroughs including Hackney, Islington, Southwark, Hounslow, Hammersmith & Fulham, Hillingdon and Brent have limited - or are introducing limits on - developers’ freedom to deliver such schemes.

“A lot of them have lost office stock and are concerned about losing light industrial stock,” says Fallows. “Some of them are applying restrictions to specific areas. Southwark is doing it for railway arches, for example, while others are doing it for blanket areas in the case of Islington, Hackney and Hounslow.”

These practices aren’t restricted to London. Councils such as St Albans have similarly worked to limit the use of PDR. Given the reluctance of local authorities to lose light industrial space and the local jobs it provides and their early moves to block conversions, some speculate that the push to create new housing from light industrial stock, through the PDR trial, is dead in the water before it has even begun.

Indeed, Craig O’Brien, head of Savills’ Bristol planning team, sees no signs yet of queues forming to submit plans under PDR or of adoption at scale.

“We have not seen any significant enquiries from a planning consultancy point of view,” he says. “I don’t think it’s seen as something that is going to make a huge difference in terms of delivery of development given the restrictions and the possibility of veto from authorities if they feel the purpose of a place is being undermined. It is unlikely we will see entire industrial estates go over to residential use. The locations tend not to lend themselves to that for a whole host of reasons.”

Jo Russell, a director in the Birmingham office of planning consultancy Turley, agrees that development under the new rules is likely to be limited.

“We’re not seeing any significant approaches from clients who are active in [Birmingham] city centre,” she says. “We have had a couple of enquiries over the past six months, but the sites concerned tend to be ones that would require further alterations and would need entering into the planning process anyway.”

Limited potential

This handful of light-industrial-to-residential enquiries compares poorly with the 42 sites that were converted from office to residential in Birmingham in the year to April.

However, the UK-wide picture shows that the number of office-to-resi conversions has slowed. What’s happened since that PDR came into force in 2013 could offer some clues as to what’s in store for the light industrial trial.

According to the latest data by the Department for Communities and Local Government (DCLG), office-to-resi PDR applications slowed down significantly after an initial flurry of activity.

The data shows that 4,851 PDR conversions were granted in the period April 2014 to March 2017, with Greater London accounting for 41% of the total, with 2,008 permissions.

In the first quarter of this year councils accepted 357 requests and refused 122, compared with 463 and 203 respectively during Q2 2014.

Despite the slowdown, the healthy number of applications immediately following the introduction of the new regulations was encouraging for government and did translate into old, unsuitable office stock being turned into new housing. In most cases, though, converting offices is easier than converting industrial buildings. Part of the problem is that heritage buildings with a light industrial use, such as those in Birmingham’s Jewellery Quarter, will need listed building consent anyway.

This rules out many of the potential development sites in city centres, although Russell says there may be scope for conversions in older, established residential areas.

“There are certainly light industrial units that are vacant or derelict and have sat around for a number of years,” she says. “As they deteriorate, they become less likely to be picked up for light industrial use and therefore become pockets around cities and towns that are ripe for development.”

Russell cites Earlsdon in Coventry: “It’s a locality on the edge of the city ring road with older industrial buildings that have been around since the turn of the century and are now surrounded by existing residential areas,” she explains. “In these places, small-scale, light industrial uses are becoming more compromised, land values are high and there’s no more brownfield land to develop.”

In these little pockets where the nature of the neighbourhood has already evolved away from commercial uses, developers may potentially redevelop former factories into small housing units or apartments.

This will suit smaller to medium-sized developers, says Russell. “There are opportunities there for a niche in the market - those who know their local market, are looking to build a maximum of 30 to 40 units on a site and are familiar with the surroundings of an area that also has high value.”

Russell believes some councils will support such developments, particularly those outside London. “The Black Country is consulting on its local plan and core strategy at the moment and one of the drivers is to redevelop older industrial areas where there are small pockets of brownfield for residential while releasing greenfield land for job creation.”

Rental boost

Where such development happens it will serve only to push up industrial rents, says Chris Jeffs, an investment manager at M&G Real Estate.

“It will probably accelerate the take-up of industrial land [and] drive an increase in rents and is likely to continue to attract international capital,” says Jeffs. “That prospect of continued or accelerated supply/demand imbalance is where we see opportunity. We continue to focus on locations that will benefit from sustained income growth.”

However, given the expectation that lighter-touch industrial-to-resi rules will still have only a marginal effect on development, fresh thinking is needed to address the demand for both light industrial and residential, especially in cities.

Local authorities are increasingly trying new approaches to, say, convert large industrial sites into mixed-use development that includes some residential.

“Competing pressures are leading local authorities, particularly the Greater London Authority, to look at more flexible opportunities, but we are also seeing that in other areas, including Birmingham, Manchester and Leeds,” says Jeffs. “We are seeing opportunities to create value by working with local authorities to intensify the use of sites, for example in the successful [mixed industrial and residential] Travis Perkins development in Camden. That seemed to work for all stakeholders. We have our eye on some existing holdings for their potential to create more flexible space and intensify use on a large scale.”

Perhaps the solution is not sheds or beds, but sheds and beds.

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