With demand for residential property in London reaching new highs, office-to-residence conversions are increasing in popularity among those looking for a strong investment opportunity. According to a report from DTZ, a UGL company, the number of offices set for conversion over the next two years will rise significantly, as people continue to exploit soaring residential values in the capital.
A record pick-up in the number of office schemes granted permission for redevelopment has already been recorded this year. By the end of the third quarter of 2012, some 2,197 office units marked for conversion into residential property had already been given planning permission. DTZ claim this outstrips any previous annual total and indications that the number of completions over the next couple of years will rise considerably.
In 2013, completions are expected to rise by 12 per cent over 2012 levels to approximately 1,350 units. This will increase yet further in 2014, with 1,600 units converted, equating to growth of roughly 18 per cent.
Ben Burston, head of UK Research at DTZ, said: "Strong growth in central London residential values is making the conversion of office sites to residential use attractive to developers and landlords. For example, average West End residential values range up to GBP 3,250 per square foot (psf) in St James, compared to prime office values of around GBP 2,100 psf."
The rise in office-to-residence conversions has also been coupled with a change in the location of schemes. DTZ claim that the City and Fringe areas will now account for 40 per cent of total units delivered in 2013-14, whereas the previously active City Corporation area will stay relatively dormant. "The City, outside of EC1, has delivered little stock (so far)," Mr Burston said. "Going forward we expect City fringe areas (E1, EC1, SE1) to deliver a larger proportion of stock over the next two years."
However, DTZ stress that the increase in conversion levels will not significantly impact overall availability of office stock in the immediate future, meaning there are still lots of opportunities for investors to secure such property over the coming years.