After many difficult years of oversupply and either declining or static rentals.
In the past five years fundamental changes have taken place both in terms of supply and rent/pricing levels. Some of these changes have been common to many locations in the South East of England however the impact has been in many ways more pronounced in NW M25.
The reasons are closely related to, but cannot be exclusively attributed to the permitted development rights changes which gave the ability to convert offices to residential.
This legislation was designed to address the perceived housing crisis and to shift resources from an “underused” office sector into one where there was unsatisfied demand (residential).
There have however been unforeseen consequences and in many ways the policy whilst well-intentioned was not drafted in a sufficiently focused fashion.
We have seen a lot of secondary offices in locations that make sense for residential use changed but we have also seen a lot of good quality town centre office space converted which is a problem for businesses looking for space. We have also seen inappropriate conversion of offices located in areas (industrial estates) which in some cases are on the margins of acceptability for residential use and may be difficult to remortgage down the line potentially causing future social problems.
We have already seen examples of converted premises in industrial estate locations where obtaining mortgages has been difficult. This difficulty means that these locations are unlikely to be readily available to first time buyers many of whom may already struggle to meet lending criteria.
It is a pity that the legislation did not find some way of preventing the loss of good quality offices in town centre locations which were never particularly oversupplied or under used. Particularly tragic examples of this are Swan House in Rickmansworth, the former headquarters of Comet which is a good quality air conditioned office building with excellent parking with access to the M25 and is situated almost immediately adjacent to a metropolitan line station. An office building of this nature is a key component of the economic viability of a town such as Rickmansworth and should not have been converted to residential use. We believe it is unlikely to have been conversion of this sort of building that was contemplated by the policy makers.
As a consequence of this sort of conversion and the more appropriate conversation of secondary stock we have seen pressure build in the office market. This coupled with a general economic recovery since the financial crisis has led to rents increasing by in excess of 50% over the last five years. We are now faced with severe shortages of office accommodation in town centres such as Watford, St Albans and Rickmansworth.
As an example Watford has a current town centre ‘A’ Grade availability of approximately 22,000 sq. ft. in a town which will typically see 200,000 sq. ft. of take up over a year. There is of course additional supply in out of town locations around Watford but the majority of take up in many years would be focused on town centre options.
As a consequence it is likely that some businesses that might locate in North West M25 towns that have good public transport access will leapfrog these locations to seek a greater variety of options and better value further out or alternatively postpone relocation plans.
Local Authorities have woken up (some earlier than others) to this threat and in many instances Article 4 declarations have been put in place to protect critical employment areas. In some cases this is too late (Rickmansworth and St Albans being good examples) and in other instances the choice of areas to be protected is slightly strange. For example Three Rivers District Council has chosen to protect offices in Tolpits Lane and Maple Cross whilst leaving the town centre completely unprotected. The market reality is that the offices in Tolpits Lane and Maple Cross are either of poor specification and/or in locations where office demand is weak as a consequence of poor public transport access and lack of amenities. These offices are the type of product that could be lost from the office market without too much economic impact.
In Hemel Hempstead we are aware the Local Authority are now looking to implement Article 4 Directions at the Maylands Estate. This is despite the fact the majority of the office loss has been in the town centre, perhaps this is because there is very little left to protect
The pressure on local authorities to provide housing numbers and also have the ability to direct some of the housing delivery towards certain socio economic groups or towards key workers has led to local authorities making concessions in terms of residential delivery in what were exclusively commercial districts. If you are faced with the choice as a public body with having 100 private residential units in a former office building that doesn’t convert well, is aimed at the private rented/ sale sector at full values or negotiating a consent for a new scheme for 200 units with 50 of them being social housing it is easy to see which route delivers policy objectives better.
In order to achieve control and deliver on housing targets consents are also being given in office locations for mixed schemes that propose poorly configured offices in order to establish a residential consent. These scheme will either not be deliverable without variation (reduction or removal of the office element) or will not provide a solution to business office requirements. At present 200,000 sq. ft. of offices are consented in one NW M25 Town as part of mixed schemes with none having a definite start date or an identified developer.
In some locations the injection of residential use is bringing amenity and retail uses that enhance the office offer (for example Maylands Avenue) but this is not necessary in town centre locations.
Both in terms of realistic residential delivery (consents do not mean construction) and providing office accommodation the recent crop of town centre mixed use consents promise way more than they will deliver.
For more information on the office market in South West Hertfordshire or for advice on acquiring, letting or disposing of industrial properties please contact us.