Unlocking value in property: commercial vs residential

The versatility of commercial property

Commercial properties serve a wide variety of business purposes, from offices and retail spaces to entertainment venues and industrial units. From a design perspective, the layout differs significantly from residential properties; functionality and ample storage is essential as they need to accommodate varying numbers of staff, customers or visitors.

The clear differences between residential and commercial property can complicate the property conversion process. Nevertheless, the potential for increased profitability and longer contracts often outweigh the challenges. Overall, the commercial sector offers greater opportunities for more sustained financial growth.

Economic outlook

According to recent data from Savills, the UK’s commercial property market is set to see renewed growth. Following the Bank of England’s recent interest rate cuts, the sector is attracting significant investment, particularly from international markets. In the first half of 2024, cross-border investments in UK commercial property reached an impressive US$14 billion, surpassing even the United States and other major European markets.

It has also been reported by Savills that the average UK prime commercial property yield has remained stable at 6.07%, as of July 2024. Despite this, experts predict a rise in yields as interest rates continue to fall, with another 25 basis point cut expected in November as confidence in the UK economy strengthens.

We can expect any current hesitancy to dissipate after the release of the new government’s October budget, as many investors are likely to increase their activity in the final quarter of this year. This undeniable sense of market optimism bodes well for both existing commercial property owners and those considering venturing into the sector.

Shifting social trends

As society shifts, we’re witnessing a distinct divergence in performance across property types – for example, the popularity of warehousing is increasing to support the booming e-commerce sector. This is a contrast to traditional brick-and-mortar retail spaces that are struggling to compete against online shopping services.

Another key trend is the return to office-based work, which is creating new opportunities for investors in commercial office spaces (as discussed in our previous blog). With companies adapting to hybrid working models, the demand for well-designed and flexible office environments is on the rise – giving a boost to the commercial property market.

Navigating planning permission

Perhaps the most critical step in converting a residential property to commercial use is securing planning permission from the local council. The Town and Country Planning Order 1987 categorises land and buildings into various ‘use classes,’ which determine how a property can be utilised.

The need for planning permission will depend on the current use class of your building and the intended commercial use. For example, converting a shop into an office may not require permission – whilst turning a residential property into a restaurant likely will. It’s essential to consult the Planning Portal to verify whether a change of use is permitted without planning permission, or if additional steps are required.

In most cases, converting a residential property into a commercial one will necessitate planning permission, so it’s important to start this process early. Working with a knowledgeable planning consultant can help streamline the process and ensure that all legal requirements are met.

Targetfollow

With over 30 years of experience in the real estate sector, Targetfollow have a succinct understanding of the complexities and opportunities of property conversion. Our diverse portfolio that ranges from office spaces, retail units and hospitality venues, demonstrates our track record of delivering considerable value to each project.

Our expertise in navigating complex planning processes, along with our ability to adapt to shifting market conditions, positions us as a trusted leader in the commercial property sector.

To stay updated on our latest projects and insights – follow us on Facebook, X and LinkedIn.