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Retail to residential conversions down 17% despite growing retail vacancy rates

Despite having the backing of the Government, the number of retail to residential conversions have fallen by 17% in the last year in England, new figures suggest.

Shop conversions are stubbornly low despite retail industry struggles and there are reports of some councils starting to restrict conversions, according to a new report from private wealth law firm Boodle Hatfield.

The number of retail properties approved for conversion to residential property has dropped 17% from 453 in 2017/2018 to just 376 in 2018/2019, the research shows.

The firm says that this drop in the number of retail to residential conversions is particularly worrying given the sharp rise in vacant retail space over recent years. British Retail Consortium data showed that town centre retail vacancy rates hit 10% in April 2019, the highest since April 2015.

Converting some tertiary retail into residential property has been proposed as a solution to the problem of long term empty retail units and the fall in conversions comes at a time when research from Savills has found that even by 2021, only 260,000 new homes are likely to be built, short of the Government’s 300,000 target.

‘There is an increasing acceptance that some peripheral retail property needs to be converted to other uses to prevent areas dying. These figures show that this simply isn’t happening on the scale it needs to,’ said Dennis Ko, partner in the real estate team at Boodle Hatfield.

The firm believes that the fall in conversions is being driven in part by local authorities restricting developers from using ‘Permitted Development Rights’ (PDR). PDR is the system that allows developers to convert commercial property to residential use without a full planning application.

The PDR system was introduced in 2013 to incentivise developers to convert disused commercial property into housing, helping to reduce the shortfall in new homes built. However, some local authorities have now started to restrict use of PDR for converting shops to housing, as they wish to protect their stock of retail property in the hope that the market will rebound.

In cases where PDR restrictions are in place, developers must go through a full planning approval process, which increases costs and complexity significantly.

Areas with restrictions on retail to residential conversions include the London Borough of Hackney, which has put in place restrictions to prevent retail to residential conversions in its town centre areas, including high streets in Dalston, Stoke Newington and Finsbury Park.

Also, the London Borough of Waltham Forest, which has a retail to residential conversion restriction in place across the whole borough, and the London Borough of Kensington and Chelsea has specifically restricted conversions of launderettes to housing

Boodle Hatfield says that local authorities must strike the correct balance between protecting their commercial property stock, maintaining standards of housing and discouraging developers from building new homes. Some have criticised PDR for allowing converted homes to be built below the minimum standards for size and number of windows that new-build units must comply with.

‘With the number of retail units standing empty around the country, it’s surprising that a growing number of councils are opposed to seeing new residential units replacing them,’ Ko pointed out.

‘While it’s important to ensure the right mix of residential and commercial property, especially in town centre areas, disincentivising developers from creating new homes is unlikely to be the best way to do it,’ he explained.

‘Developers often complain that the full planning process is slow, inconsistent and frustrating. Some will simply walk away rather than deal with that. It would be great to see the new Government make far reaching reforms to the planning regime. Much has been promised by several previous Governments, but the planning system still works to prevent a lot of vital residential development,’ he added.