CONVERTING offices into housing has been proposed as a potential solution to falling occupier demand in the commercial sector.
RICS has revealed that its Q2 Commercial Property Survey results point to a ‘further deterioration’ in conditions in Scotland. A net balance of -66% of Scottish respondents reported a decline in occupier demand.
While the decline in tenant demand was most felt in retail and office space, with net balances of -92% and -82% respectively, a fall was also seen in demand for industrial units, with 23% more respondents in Scotland seeing a decline. This is the first time that the industrial series has seen a negative response since 2016.
The near-term outlook for rents is now negative across the board in Scotland. A net balance of -93% of Scottish survey participants expect retail rents to decline in the coming three months, the poorest reading since 2008. In the office sector, a net balance of -64% are predicting a further fall in rents. 12-month rental expectations in Scotland have fallen further, with a net balance of -55% of respondents.
RICS said that while interest in retail in general has fallen, some ‘anecdotal evidence’ in the survey points to interest in secondary units, in some instances perhaps due to the potential for conversion to housing as well as appetite from independent businesses looking for space in local high streets.
Chartered surveyor Gavin Anderson of DM Hall in Glasgow said, “Over the past three months, there has generally been a hiatus in the commercial property market in Scotland. Transactional activity should hopefully pick-up once lockdown restrictions are lifted, but transactional volumes are likely to be down on last year. Recovery profiles will vary from sector to sector and inevitably there will be a repricing of some assets, particularly in the retail and hospitality sectors.”
Hew Edgar, RICS’ head of UK Government relations added, “With any downturn there can be an opportunity, and the Scottish Government must also look to replace uncertainty with stability; and fill the middle of the commercial sector polo mint. Offices and shops in city centres need support as people stay away from their normal workplace, and although local shop hubs are benefiting, the market must be addressed as a whole.
“However, the reduction in demand for office space in some locations in Scotland could be used to counter demand for housing. One route – trialled by the UK Government – is through permitted development rights, which can increase the delivery of new housing by reducing regulatory burdens. The recent loosening of PDRs, however, is not right and have raised concerns around substandard homes, including building and space standards, all of which were highlighted in a 2018 RICS report. Regulatory safeguards would be needed to ensure quality is not bypassed.
“Scotland’s PDR regime is more stringent, so as an alternative, it should be made easier to deliver viable office-to-residential schemes through the planning permission process. This would maximise the existing asset base in a sustainable way, providing affordable homes in close proximity to pre-existing facilities while contributing towards community and wellbeing. New community hubs, developed through repurposing and reusing building stock, would be greener, will support supply chain management in construction, and would kick start SME activity. All of this would contribute to a stronger and quicker economic recovery.”