A lack of funding and uncertainty over Brexit contributed to a sharp decline in the volume of office to residential conversions in the year up to 30 September 2016.
New data from the Department for Communities and Local Government reveal that the volume of office to residential conversions has fallen by 19% over the last year from 2,942 in 2014/15 to 2,388 in 2015/16.
According to Saving Stream, one of Europe’s largest and fastest growing peer to peer secured lending platforms, the lack of funding available to property developers is a key contributor to this decline in conversions in the last year.
Saving Stream says that bank lending to the property sector fell during the financial crisis as banks de-risked their balance sheets, and was further reduced this year following the Brexit vote.
Saving Stream adds that even the newer challenger banks have reduced their lending to the property sector, which has left many developers without the funding necessary to start major developments.
Rules surrounding office to residential conversion were relaxed in 2013, and made permanent in April 2016 with the purpose of tackling the chronic housing shortage across the UK.
However, Saving Stream adds that without the funding necessary to get projects off the ground, developers have not been able to make the most of these changes.
Additionally, the company believes that uncertainty over how Brexit might affect property prices, particularly in London, has also contributed to the drop in conversions over the last year.
Saving Stream reports that developers requiring fresh funds for projects such as office to residential conversions are now turning to other forms of finance such as P2P lending or private investment.
Liam Brooke, co-founder of Saving Stream, said: “When there is a clear need for more residential development across the UK, it’s surprising that the number of conversions has fallen over the last year.
“Office to residential conversions tend to be very successful- and with the relaxing of the rules made permanent early in 2016 we would have expected the number of conversions to be on the rise.
“However, developers need to have ready access to finance in order to get these projects off the ground.
“The lack of bank funding available to developers presents an opportunity for other alternative forms of finance providers to step in and fill this gap.”
“Indeed, since the Brexit vote banks have reduced their exposure to the property market even further giving private investors access to better investment opportunities.”
“Densely populated areas such as London and the South East have been particularly badly affected by the housing crisis. In these areas, however, there are also likely to be higher amounts of redundant commercial buildings which could easily be converted.”
“We’ve successfully helped to fund a number of projects converting vacant office buildings into residential spaces such as Old Hall Street in Liverpool City Centre with a loan of £3.8m.”