An increasing number of landlords in East Anglia are being forced out of the commercial property market. BETHANY WALES found out why that might not be a bad thing.
It’s a tough time to be a commercial landlord.
High business rates, changing energy standards and a slump in demand is making it harder than ever to make a profit from office stock.
And although high interest rates are making life hard for residential landlords too, property experts say a toxic cocktail of circumstances is making it a more appealing option for many in the commercial sector.
CHANGING APPETITES
Keeping up with changing energy standards is one of the biggest challenges faced by commercial landlords.
The Minimum Energy Efficiency Standards (MEES) were tightened in April this year, banning landlords from leasing commercial buildings with EPC ratings below an E.
And from 2030 those standards will be tightened even further, with all rented non-domestic properties needing to achieve an EPC at a B or above.
Despite this, it’s estimated that there are still more than 19,000 commercial rental properties with non-compliant ratings - about 15pc of the UK’s commercial property stock - according to professional services network PwC.
At the current rate of progress, industry analysts believe it will take until 2036 for all rental properties to meet the 2030 MEES standards – putting the industry on course to miss the deadline by six years.
According to property experts in East Anglia the slow rate of change comes down to one thing: cost.
Vanessa Penn, managing director of Suffolk-based Penn Commercial, said: “Rising building material costs are making it especially challenging for landlords to upgrade their properties.
“Refurbs can be very costly and often they can’t get that investment back with rent because availability exceeds tenants’ appetites.”
The “work from home” boom that was fuelled by the pandemic has also had a major impact on the demand for commercial property.
READ MORE: Warning as north Norfolk asking prices SLASHED at one of the highest rates in country
Ms Penn said many companies in Ipswich and surrounding towns had downsized their office spaces, with prospective tenants more interested in “non-traditional layouts that favour hot desking” rather than the traditional cellular style that dominates local stock.
She said companies were also looking for shorter leases - five years with breaks rather than 10 years - making it harder to secure bank loans to make needed upgrades.
This, alongside the looming EPC deadlines, is prompting a growing number of landlords to convert their commercial offerings into residential ones.
THE MOVE TO RESIDENTIAL
The conversion process is currently easier than ever thanks to changes to Permitted Development Rights (PDRs) introduced in 2016.
The updates made it possible for landlords to make certain changes - including switching a building from commercial to residential use - without the need to apply for planning permission.
In Ipswich the former BT office block on Bibb Way is set to be turned into affordable flats. While in Norwich, East Gate House on Thorpe Road has been converted from office space into 47 new apartments.
And although Norwich City Council was recently given the power to remove PDR - meaning they can limit the number of city centre offices being turned into flats - property experts say the increase in office conversions is a positive thing for the commercial market as a whole.
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Guy Gowing, managing partner at Norfolk-based Arnolds Keys, said: “Removing the over-supply of offices in the region put the market in a good position for the realignment of demand brought on by Covid.
“It has re-balanced supply and demand and, although there are fewer office buildings now, they tend to be better quality than we were seeing.”
Mr Gowing added that for many landlords converting empty offices into residential offerings is more cost-effective than paying “very penal” vacant business rates on properties that aren’t bringing in rent.
What’s more, Ms Penn suggested that rather than lamenting the loss of office blocks, we should instead celebrate increased housing options in our cities and towns.
She said: “It helps footfall in town centres, which in turn benefits the shops and restaurants.
“Our town centres are hurting because people never returned to in-person shopping after Covid, so this could help redress that balance.”
Which offices have been converted?
- Former-Stationery Office, St Crispins House, Duke Street, Norwich; converted into 684-bed student accommodation block in 2023
- Former-Debenhams building, Orford Pl, Norwich; plans submitted to convert into 400 student flats
- Former Eastern Electricity Board site at Duke's Wharf, Norwich; plans submitted to convert into 700 student flats
- Foxwood House, Kesgrave; approval given to convert into six flats in 2022
- Former BT offices, Bibb Way, Ipswich; converted to 80 flats in 2022
- Former-Mid Suffolk District Council building, Needham Market; converted into homes in 2021
- Former Blomfield House Health Centre, Bury St Edmunds; converted into flats in 2021
- Castle House, Castle Street, Norwich; converted into 23 apartments in 2021
- Haven House, Lower Brook Street, Ipswich; approval given in 2021 to turn into 49 homes
- Former-tribunal offices Skipper House, Ber Street, Norwich; converted into 45 flats in 2018
- Former-Aviva building, St Stephens, Norwich; converted into 700 student flats in 2018
- Former-Aviva building Imperial House, Rose Lane, Norwich; converted into luxury flats in 2016
- Westlegate Tower, Norwich; converted into 17 luxury flats in 2014
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