Sarem Eddie Kerman is Investment Director at London-based Pelican Partners, a private equity and real estate investment firm.
Under the current UK Government, planning is fundamentally changing. And this will necessarily have an impact on both residential and commercial property in the UK.
In 2020, the Government said that it intended to implement wide-ranging changes to the country’s planning system. The first changes were implemented from 1 September 2020 with the Town and Country Planning (Use Classes) (England) Regulations 2020.
Why the changes are so important for commercial property in the UK
This amendment is enormously important to commercial property in the UK, as it essentially recategorises all of it into one single use class. At the same time that the Use Classes legislation came into effect, the Town and Country Planning (General Permitted Development) (England) (Amendment) (No.3) 2020 order also came into force.
These are both major shake-ups for the UK’s planning system, and the Government says their aim is to increase the supply of new residential properties and to make commercial uses much more flexible. Further changes to the rights of developers to convert commercial property into housing will come into force later in the year.
The Use Classes Amendment covers uses of land and property and is substantially changing how it all works. For commercial property, the changes are profound. They relate to the use of commercial property including gyms, cafes, restaurants, financial services, professional services, retail and offices.
Previous A, B1, D1 and D2 uses are now under a single Use Class under the amendment. The new Use Class is E – Commercial, Business and Service. All properties that previously fell under A1, A2, A3, B1, D1 or D2 use moved into Class E on 1 September 2020.
As a recap, here’s what those categories refer to:
Class A1: Shops including hairdressers, undertakers, dry cleaners, Internet cafes, post offices, pet shops, domestic hire shops, travel agencies, ticket agencies and retail warehouses.
Class A2: Financial and professional services including building societies, estate agencies, employment agencies. Does not include health services, medical services or betting offices.
Class A3: Restaurants and cafes, including any business that sells food and drink to eat on the premises.
Class B1: Businesses, including offices, research and development of processes and products and light industry that is considered appropriate within residential areas.
Class D1: Non-residential institutions such as health centres, day nurseries, schools, art galleries, libraries, halls, museums, churches and places of worship, law courts and training and education centres.
Class D2: Assembly and Leisure, including cinemas, concert halls, music halls, bingo halls, dance halls, swimming pools, gyms, skating rinks and areas for indoor or outdoor sports other than shooting and motor racing.
Making commercial sector much more flexible
All of these separate uses are now under one category – Class E. The idea behind pushing them all into a single Use Class is to make the office and retail sector more flexible. It means that premises can now move between uses easily and without needing to apply for planning permission.
For example, a building that was categorised as a gym under Class D2 would have had to apply for planning permission prior to 1 September 2020 to change use to a shop. Now, they can just go ahead and change the use without the bureaucracy that has been in place for many years. Under the old legislation, to change a gym to a retail unit would have needed a sequential assessment, which is now no longer necessary.
However, any physical work to the building still needs permission. This includes changing the physical nature of the building, altering or adding a car park or advertising outside the unit. The Government also says that if an operative planning permission includes restrictions about a specific premises, then this takes precedence over Class E categorisation.
The amendment also allows any part of the building to be used by a different purpose, as long as it comes under Class E. So, a retail unit could include a café and as these are now under the same class, no change in permission is needed. This opens up many opportunities for café and restaurant owners to move into prime retail units that were previously protected.
For office use, the Use Classes Amendment also allows for flexibility. It means previously redundant, useless spaces can be converted into more relevant commercial uses. And while this sounds accessible and simple, there are many practical considerations in changing purpose-built office space into other suitable Class E uses, so this will stop some planned conversions from happening in reality. Class E includes more than 1.5 million buildings.
Changes to the General Permitted Development Order
On 31 August 2020, an amendment was passed to the General Permitted Development Order (GDPO) 2015. The original order allows some forms of development to go ahead without the need for full planning permission. The new amendment includes a totally new permitted development right.
Part 20, Class ZA allows the demolition of previously Class B1 properties if they are vacant and flats in order to replace them with Class C3 (dwelling houses). These replacement properties can be detached houses or block of flats. Again, this amendment is designed to allow the replacement of standalone Class B1 properties into something more useful. It also allows for existing single dwellings to be replaced by bigger residential units.
What’s particularly unusual with this new permitted development right is that it is very wide in scope. It allows for buildings of up to 18 metres high, which correlates to six storeys, to be built with no need for full permission.
We’ve seen big changes to planning since 2020
So, since summer 2020, we’ve seen some hefty reforms to the UK’s planning system. These changes to development rights should pave the way for more housing and fulfil the constant demand for ever more affordable properties.
Further changes to permitted development rights have just come into force on 1 August 2021. Permitted development rights were first introduced by the Government in 2013 to allow developers to switch office buildings into housing. Rather than applying for formal planning permission to do so, they just had to talk with the local authority.
The newest changes are specifically about planning in town centres and mean that the new permitted development right is in effect for buildings right in the centre. IT allows changes from Class E – as outlined earlier – to housing. And it’s all about diversification for a more complicated future.
Adapting to a post-pandemic environment for commercial and residential property
By encouraging these kinds of conversion projects, unused retail outlets can become new homes, cafes or restaurants. COVID-19 hit the high street exceptionally hard, and some businesses did not survive. Allowing empty retail units to stay abandoned on the high streets won’t encourage economic recovery, while making developments easier will. The Government wants to attract people back to town centres.
This had led to some backlash with experts citing concerns over whether this will inevitably lead to poor quality housing. There are also worries about whether this will break retail even more by taking over town centres for different uses.
Other changes to planning in town centres came into force last year too. These allow individual house owners and developers to ‘build upwards’. This means that extensions of up to two storeys can relatively easily be built on blocks of flats.
This is another attempt to push the UK’s housing market forwards and supply the in-demand property. However, while we have seen some increase in building upwards, there hasn’t yet been much of an uptake on these types of developments.