Office to resi needs a shot in the arm - here’s how to do it

Back in April 2016, permitted development rights (PDR) for office to residential conversions were made permanent, having been introduced on a temporary basis three years earlier.

Lauded as a key tool for addressing the housing shortage, the numbers indeed show how popular the policy has been. During 2016-17, the first year of the PDR becoming permanent, Ministry of Housing, Communities and Local Government (MHCLG) figures show that almost 18,000 homes were delivered from the conversion of offices into residences, 6,000 of them in London. Close to 103,000 new homes came via change-of-use over the period between 2015 and 2023, more than 85% of them from converting offices, and more than a fifth in the capital.

Given the viability difficulties facing the residential sector, should we not be taking greater advantage of the opportunity PDR presents?

But 10 years on, some are questioning if the PDR bubble has burst. The most recent MCHLG statistics show that, during 2024-25, office-to-residential conversions in England accounted for 5,154 net additional dwellings. This is a decrease from 6,695 the previous year (a 23% drop) and a huge 70% fall from the 2016-17 peak. However, given the viability difficulties facing the residential sector, should we not be taking greater advantage of the opportunity PDR presents?

True, a number of offices are increasingly being used once more as workspaces, as many employers order workers to return to the office. But often other premises are ruled out because it is thought they lack the suitability to be converted because of their layout.

You can only define the opportunity by fully understanding the suitability, condition and adaptability of the existing structure to meet the needs of residential use. For example, it is common for office buildings to have significantly higher load capacities than required for residential use, creating the opportunity for significant re-modelling.

Furthermore with a 6% decrease in net additional dwellings delivered in the past year, office to resi conversions can still play a significant role in providing much-needed accommodation, especially as the office vacancy rate is around 6% nationally, up from 4% pre-pandemic, with some cities closer to 10%.

That is especially the case in areas away from central business districts, where poorly performing office stock is characterised by low EPC ratings, out-of-date building services and poor quality working environments. Such premises that are in danger of becoming stranded assets and conversion to residential may offer the greater return. This also taps into the sustainability case – re-use rather than building new should always be the preferred option.

So, what can be done to help restore impetus?

An increased onus placed on councils to speed up approvals would be one lever that could help

Many councils deploy article 4 – a rule allowing them to remove automatic PDR for specific areas and demand planning permission. For example, Westminster council applied article 4 exclusions to all eight of its square miles, ostensibly to protect centres of economic activity.

An increased onus placed on councils to speed up approvals would be one lever that could help, perhaps enforcing through a new clause in the local plans that local authorities are tasked with providing to the government, and allowing the secretary of state to “call in” any blanket applications of article 4.

The most recent update to PDR loosened the regulations, including removing a requirement that an office building be tenantless for at least three months before it could be converted and restoring PDR to offices of more than 1,500 square metres. But PDR still generally requires a prior approval process for local authorities to assess matters like transport, noise, and flood risk.

At Pell Frischmann, we have worked with local authorities and developers to take forward applications, where local authorities remain keen to retain their commercial stock: a hybrid approach integrating a smaller office or other class E uses can provide a way forward.

Another issue is that many offices are ruled out for development because, while a building’s exterior can be changed under PDR, any changes are subject to strict limitations and conditions, and the requirement that the materials used are similar in appearance to the existing building. Allowing these rules to be relaxed where there is a specific shortage of accommodation in an area, but ensuring that they are not too out-of-kilter with local design, could open up more offices for conversion.

The three-year rule could be abolished, enabling more ambitious office to resi projects to come under consideration by developers

Finally, conversions must be completed within three years of approval, which can lead to hurried construction or issues with financing – the latter an issue especially pertinent given the current tight financial climate. The three-year rule could be abolished, enabling more ambitious office to resi projects to come under consideration by developers.

Office to resi has been one of the property and housing success stories of the past decade. Making further changes to PDR could provide a catalyst addressing the housing shortage.

Jonathan Childs is buildings sector director at Pell Frischmann