One of the main amendments to the regulations, which are set to be introduced in April, will be the ability to convert offices into housing without the need for planning permission.
Specialist investment management company Kames Capital believes this rule change in particular will allow property fund managers to secure poorer quality office buildings with limited tenant demand and develop these into higher value in-demand residential dwellings.
Kames property investment director David Wise said that the new rules will allow the change of use of a property, although any associated related physical changes will still require planning consent. This means that in practice there will still be a need to get planning permission but in most cases Local Authorities will not be able to object to the principle of the change.
Such conversions will be subject to a prior approval process which will probably be of about 42 days, allowing local planning authorities to consider whether or not to require a formal planning application. But councils can only do so on the grounds that the change would have a significant transport impact or where the property is located in an area of high flood risk such as a safety hazard zone, or land contamination.
Councils can request that these rights do not apply to part of their area but such an exemption will only be granted in exceptional circumstances. And they will need to demonstrate that the loss of office space would lead to the loss of a nationally significant area of economic activity or would lead to substantial adverse economic consequences which would not be offset by the additional housing created. The City of London Corporation is likely to go down this route and is also likely to be granted an exemption.
The new rules are intended to last for only three years, with a view to stimulating economic growth. After three years the government are set to review its success and either withdraw or possibly extend the changes indefinitely or for a further limited period.
‘These changes will offer particular opportunities to those property fund managers with the right contacts and skills to buy some of the huge pipeline of secondary property being sold by the UK banks,’ said Wise.
‘Much of this stock comprises poorer quality office buildings with limited tenant demand but where there may be a higher value alternative use. At Kames we already focus on exploiting such opportunities and the changes will undoubtedly assist in delivering active value strategies,’ he added.
The Active Value Property Fund managed by Kames invests in good quality properties in the £3 million to £10 million price bracket with a focus on offering relative value or greater active management opportunities, with the aim of enhancing capital and rental value to provide competitive returns for investors.