Can empty shops help the housing crisis?

More than 6,000 retail outlets have closed in the last five years, according to the British Retail Consortium and, in Q2 2023, high street vacancies increased to 13.9%.

Set against the backdrop of a continuing housing crisis, these empty former shops could provide an opportunity for property investors to help provide additional housing and potentially regenerate areas.

The real benefit for investors in doing this, as opposed to a ground-up build, is that commercial to residential conversions can be delivered through Permitted Development Rights (PDR).

PDR was initially introduced in 2015 to grant a right to convert offices to residential use. In 2021 the rules were revised to encourage the building of more homes in areas with disused commercial property and these new rules include shops, restaurants, professional services, surgeries, nurseries and other high street uses – opening up a whole range of new opportunities for investors who want to convert and refurbish property either to let out or sell for profit.

Converting a property with PDR also means that investors can raise the capital they need to complete a scheme through heavy refurbishment bridging rather than development finance – and this makes it a much more straightforward, and often cheaper, process to fund the project.

At Castle Trust Bank, we’ve introduced an even more cost-efficient way for investors to fund a heavy refurbishment project, such as a commercial to residential conversion.

Our Heavy Refurbishments with Drawdowns product enables borrowers to only pay interest on the balance of the loan they have drawn down, with the remaining facility available to draw down at a later date.

This means investors don’t have to waste money borrowing the whole balance available to them, only for it to sit waiting to be utilised. Instead, they can stagger their borrowing for when they have costs to fund, such as paying contractors or buying materials.

Of course, maintaining control of costs is just one consideration for investors when it comes to the successful conversion of a commercial property to residential accommodation.

Not all vacant shops will present the same appeal as a place to live. Some, for example, may be on particularly busy or noisy roads, close to loud nightspots and unappealing fast-food outlets.

Or, they may not have parking close to the building, which could put off potential buyers or tenants.

However, for those investors who take a rigorous approach to understanding the challenges and opportunities – empty shops could help to deliver solutions for the housing crisis, as well as robust returns.

Anna Lewis is commercial director at Castle Trust Bank

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