A site we looked has a river running to the rear of it. The agent cheekily said ‘the property has river views but they’re not charging any extra for it’. Rather than this being a positive, it’s actually a hindrance. This makes the property in question in a flood risk zone, this means any planning would require a flood risk assessment and a mitigation.
In short, this means it could be unviable as a residential scheme. However, this does not mean the deal is dead. When you’re given lemons, you make lemonade.
Currently, the property is a large office space with massive height. The market for office space is strong, especially small cubicles, equipped for 1-2 person firms. Something where all the ‘bits’ are taken care of, and there is one flat monthly fee for the occupier. The freeholder’s intention was to convert the commercial office space into residential. I know the other end of this through experience, we have been shepherded out of office spaces in and around central London. Notably, an office we occupied, known as Marble Arch Towers, is now a high end residential block selling for £4,500 per sq. ft.; this equates to £2.7M for a one bedroom.
It’s easy to see the incentive of this move, especially as PD rules enable developers to convert without the need for planning. As some boroughs started losing office space wholesale, they applied for an Article 4, which, if granted, stops the developers from having this automatic right.
However, application for an Article 4 takes time, usually well over a year, by this time a borough could be decimated. When a trend gets too big it goes into reverse. With the rapid shrinking of office space, it then becomes a scarcity. The prices of office space now start to rise higher than residential. There was talk of the developer who had the planning for residential in place, then going back to the drawing board, to keep it as office space, perhaps with a little spruce up.
The most notable company in this sector was WeWork, which rose spectacularly and crashed in the same manner. An interesting story. However, it does demonstrate the demand for good quality and fluid desk space. This is not something we could take a lead on, but would need to partner up with someone in order to execute this well. There are companies who specialise in this space whom we have approached.
This does not negate residential planning, there is precedent; it has been done further up the street, with the same river flowing to the rear. This residential element only starts from the 1st floor upwards.
The objective here would be to lock in some income from the commercial, to ensure it is cash flowing well, and then keep biting away at the site to try and get residential on the upper floors. This would be our basic strategy. Commercial income is by nature a lot more desirable than residential income, as it is typically done on an FRI lease, and there are not the frequent voids and turnover one gets with residential tenants.