Pandemic drives rise in commercial to residential conversions, presenting new opportunities for investors

  • Fabrik Invest highlights significant shift from new builds to conversions
  • Lower prices, higher yields and faster income all driving the change
  • Location winning out over facilities in terms of investor priorities

Property investment firm Fabrik Invest has reported a shift in developers’ and property investors’ priorities, driven directly by the pandemic. Managing Director Dale Anderson comments:

“We’re seeing much more emphasis – from both the developers and the investors that we work with, and particularly over the past six months – on commercial to residential conversions. This is marking a significant and sustained swing away from new builds, as lower risk, more economical projects appeal more in the pandemic era.”

Dale Anderson, Managing Director, Fabrik Invest

It’s cheaper to convert an existing building than to build one from scratch. This means that savings can be passed on to the investor, resulting in a better purchase price per square foot than new build homes. They can also be passed on to the tenant, with lower rents meaning the building is faster to fill.

Given Covid’s impact on the economy, lower rents are certainly appealing to many tenants right now. Rent arrears protection service Only My Share reported last month that it had seen a 300% rise in claims during the pandemic, as tenants struggle financially. From a development perspective, this emphasises the need to focus on lowering costs where possible.

The other major factor behind the rise in commercial to residential conversions, according to Fabrik Invest, is the speed at which the work can take place.

“New builds can take two to three years to complete, whereas a conversion can be finished in just three to six months. That’s a huge difference for developers in terms of risk, as well as cost. It’s also extremely appealing for investors looking to receive income as quickly as possible.”

Dale Anderson, Managing Director, Fabrik Invest

Off-market apartments at Albion Place, in Manchester city centre, is one such example. Newly launched to the market this month, the first phase of homes are due to complete before the end of the year, providing investors with much faster returns than a new build ever could. Available from £140,000, the one- and two-bedroom apartments are also competitively priced – again, due to being a conversion, rather than a new build.

Commercial conversions also tend to deliver maximum benefit in terms of location. Albion Place, for example, sits in an enviable position between Spinningfields and MediaCityUK, just 850m from Salford Crescent station. According to Fabrik Invest, this is another plus point for investors.

“The pandemic has led investors to focus on location over and above amenities. This comes back to price, again. Cinemas, pools and gyms are all very nice, but they also eat into yields significantly by driving up service charges. In a price-conscious era, the right location – with a price-tag that can attract tenants fast – is proving far more appealing than on-site facilities and services.”

Dale Anderson, Managing Director, Fabrik Invest

Over 60,000 homes have been created using permitted development rights over the past four years, according to Housing Secretary Robert Jenrick. With demand increasingly favouring commercial to residential conversions as a result of the pandemic, it will be interesting to see how many more are created over the next four years.

 

For more information, please contact Fabrik Invest on 020 8175 9891 or enquiries@fabrikinvest.com, or visit www.fabrikinvest.com