There was a fascinating piece in the Weekend FT (see here though you’ll need a subscription to read it) about a fast-developing trend among developers to convert commercial premises, particularly office buildings, into homes in order to benefit from buoyant demand for residential property. According to the Royal Institution of Chartered Surveyors, vacant commercial space is contracting at the fastest pace since RICS started collecting the data in 1998. One in three surveyors in London and the south-east say that conversions of offices into homes are having a “substantial” impact on the market for commercial properties – hardly surprising when you consider that house prices are up 20% in the past year.
For investors in commercial property these are interesting times. Growing numbers of residential conversions will produce increased opportunity to fund developments, which can produce attractive returns for investors with greater risk appetite, while the gradual removal of commercial space that this process entails can be expected to have at least two side-effects. First, it should help to underpin both rental yields and demand for space among tenant and those seeking premises. Second, in the longer term it may well encourage commercial developments to meet demand among companies for suitable, modern space.
Either way, it’s a sign of a property market that is active and evolving, both of which will provide opportunities for asute investors.
