Enquiries and applications rose ahead of the new planning laws, but restrictions remain that may deter some landlords.
Since my last update in April the world has experienced many changes with quite a few twists and turns as a result of Covid-19. This has obviously had, and continues to have, a huge impact on the market.
Having said that, the news of late has been more positive, with developments now going ahead and changes in planning giving property developers and landlords more freedom to change commercial properties to residential dwellings. This has caused an increase in both enquiries and applications.
Most lenders in the semi-commercial space are back, but in some instances offering reduced LTVs or excluding any commercial rent. I expect this to change as the initial sharp impact starts to turn now that businesses are open, but of course that depends on the measures taken in light of the expected second wave.
Limited Offering
Presently, commercial is a challenging sector to navigate. With high-street banks having pulled back there is a very limited offering in the commercial space and rates are often outside clients’ expectations.
The perceived future demand for new leases on commercial property naturally makes lenders ask more questions and approach with caution where leases are short; and vacant commercial would not be within appetite for most with reduced demand for office space.
The pandemic has put big question marks over the future of office space and conventional office working environments, albeit, as we know, people generally have short memories.
Previously, developers had to undergo a lengthy process followed by a long wait to gain planning permission where it didn’t fit within the existing office-to-residential permitted development rights, with many getting turned down. However, the new planning laws that came into effect in September remove the requirement for full planning permission, speeding up the process of repurposing buildings that are no longer in use.
This will make huge headway in relieving pressure on greenbelt and greenfield sites. It will also be a big step in preserving green areas while helping to revive town centres and high streets that have been badly affected by the huge increase in online shopping. The new planning laws should give developers extra drive to take on projects they may have previously avoided.
It won’t be as easy as it sounds in some cases and there are still restrictions. So, for developers that want to demolish and rebuild there are strict rules they need to abide by and take into account before committing to projects such as these. Any building that was constructed after 31 December 1989 will be exempt from the new planning rules. The same applies to listed buildings but also those with a footprint that exceeds 1,000 square metres.
The building must also have been vacant for at least six months before the application is put in.
With all these restrictions, there could still be many buildings left unoccupied and falling into dis-repair. If the rental is not there, the owners could find it a challenge to afford to maintain their properties.
The retail sector has taken another blow thanks to the pandemic with less footfall than ever, and these premises do not always lend themselves well to con-version due to size, location, access and so on. However, there will be opportunities for some commercial landlords, and diversity of funding options is paramount to enable them to take advantage.
Some excellent specialist commercial lenders are still very active, with great products that are available right now. But some clients’ price expectations do not always match up and there needs to be more understanding and compromise in this area.
There is a lack of supply for specialist pure commercial lending. There are a lot of specialist lenders but not many that focus on commercial owner-occupier or investment transactions in a meaningful way.