Property Conversion: From Commercial to Residential

Posted by The Landsite on 6th April 2023 -

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Converting a commercial building to a residential unit can be a profitable investment strategy for property developers. However, it's not without its risks. This type of property project requires a higher level of investment capital to begin with to yield a high percentage return.

Here’s what you’ll need to consider before getting started:

Planning permission

Check with a local architect or local planning authority (LPA) for planning approval. The chances are you will most likely require planning but not a full planning application if you have permitted development rights.

This process can be time-consuming and costly, so it's important to factor this into the overall project plan. You will also need to check what ‘use class’ your commercial property falls under.

What are the 'use classes'?

To categorise Britain’s buildings and their uses, local authorities sort them into ‘use classes’.

There are four such classes: B, C, E, and F.

Class B: covers general industrial buildings (excluding those to do with waste or chemical treatment) and storage/distribution centres.

Class C: covers residential buildings, such as homes, hotels, and care facilities.

Class E: covers buildings related to commercial, business, or service purposes, such as shops, nurseries, or administrative offices.

Class F: covers local community and learning centres, such as museums, public libraries, small shops that sell essential items, and meeting halls.

Note: If you’re proposing to change a property into something that is not within the same ‘use class’ or doesn’t benefit from a permitted change of use it doesn’t mean you can’t, it just means you need to apply for planning permission and go through the usual channels.

If your building is classified as 'Sui Generis' in the UK, it means that it is considered unique or in a mixed-use category. This can include properties such as nightclubs, petrol stations, and casinos, which have their own set of regulations and licensing requirements. All proposed work needs to comply with building regulations.

Building regulations

Residential properties have different building regulation requirements than commercial buildings. Therefore, it is paramount to ensure that the converted building meets all necessary building regulations and safety standards, such as fire safety, energy performance certification (EPC), sound insulation, and disability access.

What Safety Certificates do Landlords Need?

Market demand

It is advisable to research the local property market to determine whether there is demand for residential properties in the area. This will help to estimate the potential rental or sale value of the property after conversion. For example, converting an un-used or derelict commercial building to potentially offer accommodation to university students can be seen as a popular option benefitting the developer and the tenant.

Financial feasibility

To determine the financial feasibility of the conversion, there needs to be a thorough cost analysis of the entire project. This should include the purchase price of the commercial property, the cost of planning permission and building regulations, renovation costs, ongoing maintenance, legal and management costs.

Location

The location of any commercial asset is an important factor to consider. Developers need to assess whether the location is suitable for residential use, such as proximity to public transport links, amenities, schools, and universities.

Size and layout

Property developers need to consider the size and layout of the commercial property and whether it can be converted into a viable residential building. Other considerations are the type of residential building ie, Houses of Multiple Occupation (HMOs), studio flats or student accommodation will impact on the number of bedrooms, bathrooms, and living areas needed to meet the demands of the local housing market.

A Beginners Guide to HMO Investment

Legal considerations

Property developers need to consider any legal implications that may arise during the conversion process, such as lease agreements, party wall agreements, and any potential disputes with neighbours.

In summary, for your commercial to residential conversion to succeed, it is crucial to do your homework. Stay well-informed and use only professionals who know exactly what they are doing.

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