July 29, 2014 12:01 am

Businesses lose out as housing boom forces conversion of offices into homes

Construction cranes stand beside the Neo Bankside residential development on the south bank of the River Thames in London, U.K., on Wednesday, Sept. 18, 2013. U.K. commercial real estate values rose for the fourth straight month in August, led by office buildings and warehouses, Investment Property Databank Ltd. said. Photographer: Matthew Lloyd/Bloomberg pfeatures©Bloomberg

Britain’s strong housing market threatens to choke its economic recovery as developers convert an increasing number of offices into homes, reducing the amount of space available for businesses to expand.

Commercial space in the UK has declined at its fastest rate since the Royal Institution of Chartered Surveyors (RICS) began its data series in 1998, figures published on Tuesday showed.

The government eased planning rules to make it easier to convert offices to homes last year, in an attempt to get rid of older, poor-quality offices which are not suitable for modern business use.

But the new rules are disproportionately affecting economically successful areas such as London and the south east where house prices far outpace the value of even high-quality office stock, RICS found.

In the south of England a third of those surveyed by RICS said that conversions to housing were having a substantial impact on the availability of commercial stock in their area. Nationally, the figure was 18 per cent.

UK house prices rose by 10.5 per cent in the year to May according to data from the Office for National Statistics. Prices in London rose by more than 20 per cent.

Simon Rubinsohn, chief economist at RICS, said: “The pressure in the office sector is being exacerbated particularly in popular locations by the gradual conversion of some secondary space into residential. While making a much-needed contribution to the substantial shortfall of homes, there are understandable concerns that this could be creating a related problem for businesses looking to expand their footprint as economic confidence grows.”

Stuart Robinson, a director of property advisers CBRE, said that as the housing market heats up, the conversion of offices into homes was becoming an increasing problem.

“The mood of local authorities is really beginning to harden against the government’s measures to facilitate changes from offices to residential,” he said. Councils are “deeply concerned about the erosion of office stock and the way it is changing the economic fabric of their areas”, Mr Robinson said.

Westminster Council in London is particularly concerned about the impact on its local economy. House prices in Westminster are among the highest in the country, while the area forms the country’s largest concentration of economic activity.

As a result, the council is set to become one of the first nationally to introduce extra protections for office space for small and medium sized businesses.

Westminster will require developers seeking planning permission to convert offices into homes to replace any lost space that is particularly suitable for SMEs.

Robert Davis, deputy leader of Westminster Council, said: “Affordable office space is crucial in central London. So we must protect and provide wherever and whenever appropriate.”

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