In the past, there were restrictions on converting commercial premises into a residential property. However, this changed in 2015. Now, it’s far easier to carry out a commercial-to-residential development, and increasing numbers of property-buyers are cashing in on the opportunities that this type of conversion offers.
In this guide, you’ll find out how to convert a commercial property to a residential one, and the numerous advantages of doing so.
Converting from commercial to residential – a ‘how to’ guide
In 2015, the government announced major changes to the General Permitted Development Order (GPDO). This made it much more straightforward to change the purpose of a building from commercial to residential, and gave developers more scope to create homes from unusual work premises.
Step one – check if it’s an exception
Many commercial buildings are now eligible to be converted to residential, but be warned, there are some potential exceptions. These include:
- Buildings within conservation areas or national parks
- Buildings within designated areas of natural beauty / scientific interest
- Listed buildings
- Buildings within safety hazard areas / military explosive zones
If you’re unsure, check before you commit to buy. Some of the examples above may be acceptable to convert, but will require full planning permission, plus some architectural drawings. Additionally, the work might be required to be completed to a specific standard, and your design plans may be limited by official guidelines. There are also different sets of rules between different local authorities with some having limited permitted development rights more than others.
Step two – identify the building’s ‘use class’
All buildings in the UK are placed in a ‘use class’. Broadly speaking, these classes are as follows:
- A class – This includes shops, restaurants, and businesses that provide professional services
- B class – This includes offices, storage facilities and warehouses
- C class – This includes residential properties, and other places of habitation (e.g. hotels, care homes)
- D class – This is more miscellaneous, and includes schools, doctor’s surgeries, cinemas and other leisure facilities
In order to convert a commercial building into a residential property, you’ll need to apply to change the use class. Note that this is not the same as seeking planning permission. In fact, you might not require planning permission to carry out the development work – this depends on what class the building was originally.
Step three – work out if you require planning permission
Some conversions don’t require planning permission, though you will still need prior approval from the local council. Examples are:
- Retail warehouses
- Light industrial premises
- Professional services
Additionally, the buildings must be 150 square metres or smaller, and if your plans include changing the appearance of the exterior (or extending the building), you may need planning permission after all. The same applies if you want to alter the windows or move any doorways.
Step four – work out a budget
Before searching the market for suitable properties, it’s worthwhile working out exactly how much you can afford to spend on the conversion project. This type of development work is well known for its unexpected additional costs, so it’s worth over-budgeting to ensure you don’t spend more than you expected.
As well as purchasing the property and funding the work, you’ll need to factor in the following costs:
- Planning permission application – £80 to £120
- Prior approval fee – £200
- Stamp duty tax
- Solicitor / surveyor costs
You may also need to take on additional building work, such as sound proofing the property, or providing it with thermal insulation to make it suitable to live in.
Step five – arranging the finances
There are different ways to fund the conversion. Many developers select a mix of commercial and development finance options, which are usually incorporated into one convenient arrangement. There are also self-build mortgages available, and bridging loans. Speak to your lender to find out what options are available to you.
Step six – finding the right property
Commercial-to-residential conversions offer a lot of profit potential, both in rental yield and in resale value. However, that’s not to say that all are created equal. Before committing to a particular property, consider the following:
- What do you intend to do with it after the conversion? For example, if you’re renting it out, are there plenty of interested tenants in the area? If you want to sell it on, what can you realistically expect to make from the sale?
- What is the surrounding area like? This should always be taken into consideration, regardless of what sort of property you invest in.
- Have you received quotes for the work? Don’t go into the project blind. Get quotes from a few local companies so you can get an idea of what you can expect to generate in profit.
The benefits of converting a commercial property to a residential home
There are some big advantages to doing a commercial-to-residential conversion. Here are just a few:
- Prices are competitive. The commercial property market is currently quite competitive, which means prices are lower than residential properties. In short, there’s plenty of potential to get a building which you can add value to and make a good profit from converting it.
- Commercial properties are often well positioned. It’s not uncommon for commercial premises to be in prime locations, such as city centres, or close to local transport links. This makes the property much more desirable to future buyers or tenants.
- Commercial property owners are sometimes keen to sell quickly. If a commercial building has been vacant for a while, it’s likely that the owner is eager to make a quick sale. This means there’s plenty of room to haggle on price.
- It’s a blank canvas. Your commercial premises will probably need to be gutted entirely, in order to make it suitable for residents. This means there’s plenty of scope for you to reconfigure and decorate the property in the way you’d like, without too many constraints.
- Potential to create an HMO. If you really want to maximise returns, converting a commercial building into an HMO is a great option. This enables you to rent to multiple tenants, and generate a higher rental yield.