By Andy Jones, Group Director, Corporate (Investment Sales, Lettings and BTR) at Leaders Romans Group (LRG)
Individual and corporate investors are increasingly choosing to invest in residential property over other investment options. There are many reasons for this, not least the excellent value of residential property (relative to commercial property) post Covid, but possibly the greatest opportunity that has emerged over the last decade plus, is the potential for permitted development rights (PDR) to create new opportunities for property investment.
Permitted development rights which change of use from commercial to residential has provided a significant boost for residential property investment in utilising redundant office, retail, hospitality or industrial building and creating much needed housing while also delivering fantastic returns. Over the last decade, permitted development rights have increased in flexibility with the introduction of Class E (‘for everything’) and the requirement that a property need not be empty for a number of months before the application is made.
A new ‘breed’ of landlords – both individuals and investors – is emerging, requiring a new set of tools and services. LRG, through an investment in its Portfolio Sales team, is developing both online and offline tools to enable smooth transactions as its growing client base seeks out new opportunities to both buy and sell.
We’ve also spent some time understanding the evolution of this section of the market. It is clear that many of the opportunities have come about following growing customer demand for Build to Rent (BTR). A major piece of research for the BPF published earlier this year found that £250bn of investment is needed in Build to Rent (BTR) houses alone in order to meet future rental demand. This demand has been brought about by high house prices, greater geographical mobility and many people choosing the BTR sector as a life-style choice.
In the private rented sector, demand has outstripped supply for many years: according to Zoopla’s Rental Market Report: September 2024, there is an average of 21 people competing for every rental property, more than double pre-pandemic levels. These circumstances, added to the encouragement given by Government to institutional landlords, provides the perfect circumstances in which to invest in the private rented sector.
It is unsurprising, therefore, that both individual investors and companies are drawn to managed property investments, which generally take the form of portfolio investments (unbroken/broken blocks or multiple properties owned by the same entity, typically a company or an investor, as a single package).
The purchase of a single property and conversion, through PDR, provides the ideal opportunity for this.
I have seen some fantastic profits achieved by clients buying a commercial property such as an office, hospitality or retail building, converting it to residential use through the relatively easy and cost-efficient process of PDR and then either selling or managing it, benefitting from the substantial value uplift that residential property now offers over commercial. A recent example is Peartree House, a former office block in Harlow, Essex which has been converted into 26 apartments. With an annual gross yield of 8.3%, it is likely to attract strong investor appeal.
Commercial buildings, specifically retail, hotel or office premises (some of which may have originally been built as residential) can be well suited to residential use with very few changes required. Frequently these are attractive, perhaps historic, buildings, ideally located in popular areas close to amenities.
The popularity of newly converted schemes is demonstrated in HomeViews’ Build to Rent report, which surveyed over 36,000 residents and found that office to resi conversions achieve the highest resident approval ranking for all criteria, including design. Repurposed schemes, the report explains, are often located in central locations with easy access to local amenities and tend to be well managed with responsive maintenance.
The industry is clearly in no doubt as to whether the residential property sector will continue to escalate in value. The question is how those choosing to invest do so most effectively. The efficiency of PDR, supported by the efficiency of the proptech tools and that are available to assist with sales is unquestionably a recommended approach.