That’s according to development specialists at the Bruton Knowles’ Guildford office, who warn conversion schemes must be completed and “in residential use” by May 2016 – unless the Government steps in to extend the scheme.
Development Partner Guy Emmerson said: “Office to residential conversions are currently a popular market, for both smaller and larger developers.”
He said: “The office to resi phenomenon is not restricted to the larger cities. Towns across the region have seen secondary premises converted. We have, for example, recently provided advice in respect of schemes in Horley, East Grinstead, Denmead and a number on the South Coast.
“But we have had a couple of instances recently where we provided valuations of office to residential conversion schemes in 2014 where the Bank has come back and said the loan has taken longer to arrange than anticipated and asking whether the valuation can still be relied upon”.
“Apart from the usual value considerations relating to market conditions and build costs etc there is a specific issue relating to expiry of the Permitted Development Rights in May 2016.
“As we understand it at the moment, the conversion works have to be complete and the units occupied by that date - otherwise the property will not benefit from permitted development rights.
“So unless it is a very small scheme, the chances are there is no longer time to buy the property, convert it and sell the units before expiry of the PDR.
More than that, if a Bank is thinking of making a loan on a PDR scheme they need to be aware that, in dire circumstances, they would not have time to realise their security at PDR levels of value.”
Guy went on: “The Conservatives have said they will extend PDR rights to 2020 if they are re-elected and there has in any event been a consultation on proposals to extend to 2019 - but just at the moment the situation is unclear and banks, lenders and developers need to be aware of the risks”.
The office-to-resi planning rules were part of a package of planning measures announced back in 2013 in a bid to kick-start the construction sector.
The moves have proved so popular that Central London Boroughs are amongst 17 authorities who asked to be exempted from the scheme as they feared they were losing too much office space and impact on local employment prospects.
Guy Emmerson concluded: “Although PDR has eaten in to the South East’s stock of secondary office buildings to a degree, the scheme has succeeded in delivering much needed new housing.
“Bruton Knowles has four or five of these types of developments actually on site now or due on site in the next couple of months. We are ensuring the developers and lenders we are project monitoring for are acutely aware of this deadline, especially as one or two are going to be very close.
“The general feeling of the industry seems to be that this deadline is likely to be extended whichever colour of government we get, as there is so much pressure to get homes built - especially in the South East.
“Many of these schemes generate small town centre flats relevant to the lower end of the market and first time buyers and where there is little or no demand for the redundant secondary office stock.”