Permitted Development Market Trends: Office-to-Residential Conversions

Permitted development rights (PD) have been one of the most significant policy interventions in UK property development over the past decade. Introduced in 2013, the rights allow certain changes of use — most notably office (Class E) to residential (Class C3) — without the need for a full planning application. Instead, developers apply for prior approval, which assesses a more limited set of considerations including transport, contamination, flooding, and the impact of noise. The policy has driven tens of thousands of new homes across England and created a distinct sub-sector of the development market with its own dynamics, opportunities, and challenges.

By 2026, the PD market has matured considerably. The initial wave of straightforward office-to-residential conversions — typically involving tired 1980s office blocks in town centre locations — has largely been completed. The opportunities that remain tend to be more complex: larger buildings requiring significant structural work, properties in locations where residential demand is less proven, or schemes that combine PD rights with a full planning application for extensions or new-build elements. This evolution has raised the bar for developers but has also reduced competition, as less experienced operators have been deterred by the increasing complexity.

The planning framework itself has continued to evolve. Amendments to the General Permitted Development Order (GPDO) have expanded the scope of PD rights in certain areas (allowing demolition and rebuild of certain commercial buildings for residential use) while tightening requirements in others (introducing minimum space standards, natural light assessments, and affordable housing contributions for larger schemes). Developers pursuing PD schemes in 2026 need a thorough understanding of the current regulations and how they apply to their specific circumstances.

The economics of PD conversions remain attractive for well-chosen schemes. The primary advantage is speed — a prior approval application is typically determined within 56 days, compared to 8-13 weeks (or longer) for a full planning application, with no Section 106 obligations or Community Infrastructure Levy (except for schemes over a certain size that now attract affordable housing contributions). This speed reduces the developer's holding costs and risk exposure during the planning phase.

Acquisition costs for suitable buildings vary enormously by location and condition. In secondary office locations — suburban business parks, town centre properties above retail, out-of-town commercial buildings — prices of £50-£150 per square foot are common. In stronger locations, particularly within commuting distance of London, prices can reach £200-£300 per square foot. The key metric is the spread between acquisition cost (per square foot of net residential area) and the sales value of the completed residential units. In our experience, viable PD schemes typically require a minimum spread of £150-£200 per square foot to deliver acceptable margins after conversion costs and finance charges.

Conversion costs depend heavily on the extent of works required. A light conversion — essentially a fit-out within an existing shell with adequate ceiling heights, natural light, and structural capacity — might cost £80-£120 per square foot. A heavy conversion involving structural alterations, new windows, roof extensions, or the creation of external amenity space could cost £150-£250 per square foot. For a 20-unit scheme converting a 15,000 square foot office building, total development costs (including acquisition at £100 per square foot, conversion at £150 per square foot, and fees) might total £4,500,000 against a GDV of £6,000,000 — delivering a profit of approximately £1,500,000 or 25% on GDV.

Lender attitudes to PD schemes have improved markedly since the early years of the regime. Initially, many lenders were cautious — concerned about the quality of the resulting units, the residential demand in locations that had been commercial, and the lack of a full planning consent. Today, with thousands of successful PD conversions completed across the country, the asset class has a proven track record that lenders can assess with confidence.

Most mainstream development finance lenders will now consider PD schemes, provided the fundamentals are sound. Key underwriting considerations include: the quality of the prior approval (lenders want to see a clean approval without onerous conditions), the suitability of the building for residential conversion (ceiling heights, natural light, structural condition), the strength of the residential market in the area (comparable sales evidence for similar PD conversions), and the developer's experience with conversions.

Leverage for PD schemes is typically similar to new-build development — 60-65% LTGDV for experienced developers. Interest rates may carry a modest premium of 0.25-0.50% over equivalent new-build schemes, reflecting the additional complexity and the conversion risk. Refurbishment finance may also be appropriate for lighter conversions where the works are more akin to a refurbishment than a full development. The boundary between refurbishment and development finance for PD schemes is not always clear-cut, and the classification can affect both the terms available and the fee structure.

One area where lenders remain cautious is PD schemes in locations without a clear residential market. Converting an office building on an industrial estate or in a remote business park, where there is limited evidence of residential demand, will be difficult to finance regardless of the headline numbers. Lenders want to see that the completed units are saleable (or lettable, if the exit is a refinance onto a commercial mortgage for retained rental stock), and this requires comparable evidence from the immediate area.

The planning framework for permitted development has continued to evolve, and developers need to stay current with the latest changes. Several recent amendments have had material implications for scheme viability. The introduction of minimum space standards means that PD conversions must now comply with the nationally described space standard (NDSS), which requires minimum floor areas for each unit type. This has reduced the unit yield that can be achieved from a given building footprint, as some earlier PD schemes created very small studios and one-bedroom flats that would no longer comply.

The requirement for prior approval of adequate natural light to all habitable rooms has also affected scheme design. Buildings with deep floor plates or limited external wall length may struggle to achieve compliant layouts, particularly for units in the centre of the building. Creative solutions — such as the introduction of lightwells, internal courtyards, or the removal of parts of the building to create external facades — can address this issue but add cost and complexity.

Perhaps the most significant planning change is the introduction of affordable housing contributions for larger PD schemes. Schemes of a certain size in designated areas may now be required to make a financial contribution toward affordable housing as a condition of prior approval. While the contribution is typically lower than would be required under a full planning permission, it does erode the financial advantage that PD schemes have traditionally enjoyed. Developers should model the impact of affordable housing contributions on scheme viability before acquiring a building for PD conversion.

Looking ahead, the direction of travel suggests further tightening of PD rights to ensure quality outcomes. We expect minimum space standards to become more rigorously enforced, design quality requirements to be strengthened, and affordable housing contributions to be expanded. For developers, this means that the era of quick, low-quality PD conversions is ending — but well-designed, high-quality PD schemes remain a profitable and financeable proposition. Our guide on light vs heavy refurbishment finance provides further detail on how the scope of works affects financing options.

The best PD conversion opportunities in 2026 are found in locations where three conditions converge: an oversupply of outdated commercial space (creating acquisition opportunities at favourable prices), strong residential demand (supporting premium sales values for converted units), and good transport connectivity (which appeals to buyers and underpins mortgage lending). Several UK regions offer this combination.

The Home Counties — particularly Kent, Surrey, Hampshire, and Berkshire — continue to offer strong PD opportunities. Towns with declining commercial centres but excellent rail links to London, such as Slough, Reading, Croydon, Maidstone, and Guildford, have large stocks of 1970s-1990s office buildings that are economically obsolete as offices but can be converted to attractive residential accommodation. Sales values for converted apartments in these locations typically range from £300-£450 per square foot, against acquisition costs of £100-£200 per square foot.

The Midlands and North of England also present opportunities, albeit at different price points. Cities like Birmingham, Leeds, and Manchester have substantial stocks of commercial buildings that are candidates for conversion, and growing residential demand supports viable scheme economics. The lower acquisition and sales values mean that margins can be tighter in absolute terms, but the percentage returns can be comparable to or better than South East schemes. We have arranged finance for PD conversions in locations as diverse as Nottinghamshire, Essex, and Hertfordshire, and the common thread is sound fundamentals rather than a specific geographic formula.

For developers evaluating PD opportunities, we recommend a rigorous due diligence process that includes: a detailed measured survey to establish the net residential area achievable, a structural survey to identify any works required to support the change of use, a desktop assessment of the natural light position, a review of the prior approval requirements specific to the local authority area, and a market appraisal supported by comparable sales evidence for similar PD conversions. Submitting your project through our deal room is the fastest route to understanding the finance available for a specific PD opportunity.

Success in PD conversions requires attention to practical details that differ from new-build development. Building services are a common source of cost overruns. Commercial buildings typically have large-scale HVAC systems, obsolete electrical installations, and asbestos-containing materials that must be removed or managed. A comprehensive building services survey should be commissioned before acquisition to identify these costs and factor them into the appraisal.

The interface between PD rights and other consents can also create complications. While the change of use from office to residential may fall within PD, associated works — such as external alterations, extensions, new windows, or changes to the building envelope — may require separate planning permission or listed building consent. Developers should engage a planning consultant at an early stage to map out the full consent strategy for the scheme.

Warranty and insurance requirements for PD conversions are another area that requires careful management. Many mortgage lenders require a new-build warranty (NHBC, LABC, Premier Guarantee, or equivalent) for converted units, particularly where the works are extensive. Securing this warranty requires early engagement with the warranty provider and compliance with their technical standards throughout the conversion process. The cost of a warranty is typically £1,500-£3,000 per unit, which should be included in the development appraisal.

Finally, developers should consider the exit strategy carefully. While individual unit sales are the most common exit for PD conversions, a refinance onto a term facility for retained rental stock can be an attractive alternative, particularly in strong rental markets. The choice of exit strategy will influence the design of the scheme (for example, whether to create smaller, investor-friendly units or larger, owner-occupier-focused apartments) and should be decided before the design is finalised.