permitted development - Gerald Eve

North. South. East. •. Permitted development took a while to get going with average volumes of £27m per ..... Milton Keynes MK9 1AU. Tel. +44 (0)1908 685950.
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Experts in Permitted Development

Permitted development – Overview The Permitted Development Legislation introduced in 2013 has been one of the most important changes in planning policy in recent years. It has had a considerable knock on effect on stock levels in town centre office markets. During the last two years, one out of every ten new homes in the UK has been delivered through the exploitation of Permitted Development Rights (PDR). This trend is not uniform either. In Stevenage, Three Rivers, Sutton, Nottingham, Basildon, Hounslow and Harlow the number of new homes provided via PDR is well in excess of 50% of the housing stock being delivered. Ageing secondary offices used to be characterised by increased letting and void risk and significant future capital expenditure liabilities. PDR currently enables vendors to exit these investments at a significant premium to traditional vacant possession values. However, this may be a finite opportunity with the widespread adoption of article 4 directions in many south eastern centres. In addition, The Local Government Association, which represents 370 councils in England and Wales, has recently called for development rights to be scrapped as they fail to account for minimum space standards and affordable housing provision. If widely adopted, both of these points could have a significant impact on vacant possession values. There are many things for landlords to consider when appraising existing office properties and whether a PDR approval could provide the most profitable asset management strategy for a property. This is where Gerald Eve and its specialist teams can help.

Timeline MAY 2013




PDR introduced as a temporary measure to allow the conversion of offices to residential without the need for planning consent

After government consultation temporary PDR are made permanent.

PDR broadened to allow the conversion of small light industrial units (not exceeding 500 sq m)

It has been suggested that future PDR changes could allow the conversion of high street retail and may also allow demolition of offices and reconstruction of a new build residential

Experts in Permitted Development

What we do

Suitable PDR assets are often but not always older buildings which have reached a crossroads in their life cycle. Maintaining office use and creating a product that would appeal to tenants would require significant capital expenditure which is not always commercially viable in terms of achievable rents. Such assets can often create a drag on portfolio performance if maintained for office use. We have experts on PDR in planning, development, lease exit, valuation and investment with the skills to identify, unlock and significantly enhance value from these assets. Our services are tailored to suit your organisation’s changing requirements. Together we make the right choices to enhance value and mitigate risk.

Asset Identification

A thorough understanding of local markets and the drivers of value in the PD market allow us to select appropriate stock and identify opportunities.


Lease Exit



An experienced team who have transacted over £280m of PD related assets in the last 18 months. We know all the key players.

An experiencesd team to assist in costing sucessful delivery of your PD scheme.

Highly experienced team specialising in securing vacant posession quickly and effciently.

In-depth knowledge of Permitted Development Rights and conventional planning legislation enabes us to secure the most favourable scheme.


Dedicated residential valuation team to determine the best unit mix to maximise GDV.


Experts in Permitted Development

Permitted development in South East England South East of England remains the most active market for permitted development, driven by high house prices and an abundance of lower value ageing office stock. For example, since the inception of PD, the Boroughs of Richmond and Hammersmith and Fulham account for 6% of the UK’s total prior approval notifications. Although many PD transactions are undertaken off-market and go unreported we have tracked c.£650m of permitted development transactions in the South East (excluding Central London) since 2013. We have identified the following trends from those transaction in the South East which have been reported;

Reported transaction volumes Total on-market PD transactions (£)

Average capital value (£/psf)







120,000,000 100,000,000




60,000,000 40,000,000




0 2013




Under offer


2018 (YTD)


On-market transactional volume

Average capital value (£/psf)

• Permitted development took a while to get going with average volumes of £27m per annum in 2013 and 2014 • Evidence for this slow start is reinforced by low capital values (£/psf) with an average rate of £109 psf in 2013 and 2014 • 2015 witnessed a significant increase in PD transaction volumes with over £163m of deals done at an average rate of £244 psf • Volumes increased in 2016 to £170m and remained high at £162m in 2017 • Momentum shows no sign of slowing with £104m of deals already completed or in solicitors hands by the end of Q1 2018

Reported transaction volumes Total on-market PD transactions (£)

Average capital value (£/psf)







120,000,000 100,000,000




60,000,000 40,000,000




0 West London

Greater London

Transaction volume

Thames M3 Valley Corridor


Average capital value (£/psf)



• As expected West London and the London suburbs with over 53% (£298m) of total transaction volume spread over these two markets • PD transactions in West London and the London suburbs also have a much higher capital value (c.£250 psf) which is reflective of the higher house prices in these locations • Behind Greater London, the North M25 also has a high level of PD transactions with over £85m on-market transaction since 2013 • Outside of London, the average capital value for PD transactions falls significantly to £168psf and volumes are also lower

Experts in Permitted Development

Vendors 3%

• There has been a diversified mix of vendors selling to PD developers

Administration & Banks








Managed Funds


Private & Charity


Property Companies


Local Authority


Local Authority

• Institutions and Property Companies took advantage of the increased pricing for vacant offices as a result of PD and have been the dominant vendor type accounting for 47% of on-market sales •

Private Equity companies also took advantage of inflated values accounting for 12% of the recorded sales

• Finally it is worth mentioning that corporates make up an unusually large proportion of vendors at 6%. This is due to many owner-occupiers seeing PD as a useful way to dispose of surplus accommodation and achieve a premium price.

Purchasers 1%

• Unsurprisingly Developers account for over 64% of PD purchases


• Private individuals account for a further 25%. The vast majority of these already own residential portfolios and have some development experience




Managed Funds


Property Companies

25% Private



• The chart illustrates the lack of engagement from the rest of the market. Although most PropCo’s will have extensive experience of refurbishment and gaining change of use they have accounted for a mere 6% of total acqusitions.


Experts in Permitted Development

Case Study

Hounslow Centre, One Lampton Road Hounslow • 110,000 sq ft of accommodation (60,000 sq ft of offices) • Freehold • The ground and part first floor re let to TK Maxx for a further seven years • The offices are multi-let with a number of vacant suites providing an opportunity to gain vacant possession • Permitted development achieved to convert the office element to 115 studio, one and two bedroom apartments • Achieved £21,000,000

Gerald Eve Role Gerald Eve’s involvement with this asset started in 2012. Given the age of the building a strategy was required as to how best extract value from site. Our planning team initially made representations to the Council for the site to be designated for a mixed use development. Following the announcement of PDR legislation prior approval was achieved in 2016 for a change of use to residential because of the lack of a commercially viable alternative. A subsequent pre-app meeting was then held regarding increasing the massing of the building. The property was then jointly marketed by our Investment and Planning & Development teams via a wide marketing campaign to ensure full market coverage.

Experts in Permitted Development

Other Projects

Circa, The Ring, Bracknell • Town centre freehold office totalling 25,970 sq ft • Acquired for £5.05m by Gerald Eve on behalf of Stonegate Homes (from Canada Life) in April 2017 • PDR obtained for conversion to 68 residential units • Planning application for 84 units currently pending • Retained agents on disposal for £7.5m

Elstree Tower, Borehamwood • Single-let freehold office totalling 80,713 sq ft • Acquired by Gerald Eve on behalf of Standard Life as part of the Pearl Portfolio (£165m) in December 2015 • Retained agents on disposal for £20.0m

Xerox Campus, Uxbridge • Campus comprising three self-contained office buildings totalling 147,807 sq ft • Three planning permissions granted • Disposal for £40m on behalf of L&G

Imber Riverside, East Molesey • A 7.5 acre freehold industrial estate, totalling 180,000 sq ft of B2 and B8 use • Outline planning permission granted in December 2015 for 95 residential units • Disposal for £26.7m on behalf of Coal Pension Properties to CALA Homes

15-17 Hewer Street, Ladbroke Grove London • A freehold site arranged over 13,478 sq ft of existing accommodation • Redevelopment opportunity to increase floor space and increase residential accommodation • Disposal for £7.5m on behalf of John Nodes and Sons Ltd to Uplift Properties

Stag Brewery, Mortlake • A 21.2 acre freehold industrial site, totalling 353,000 sq ft of existing accommodation arranged over 16 buildings • Not sold with planning permission, however is located in a site favoured by the Borough Council for sustainable redevelopment, with a mix of uses • Disposal for £158.0m on behalf of Ab InBev to City Developments Ltd


Experts in Permitted Development

“ The sale of the Xerox campus in Uxbridge concluded a successful result for LGIM and the advice of Gerald Eve’s Capital Markets team, which bookended our ownership of the assets, was central to the result achieved. The team’s understanding of the sector and local market as well as the wider investment environment was crucial in acquiring the property at an attractive price. Their on-going involvement helped add value over our hold period where we latterly exploited permitted development rights to crystallise a significantly enhanced price on exit. We wouldn’t hesitate to instruct Gerald Eve again on both disposals and acquisitions. ” Rob Codling Fund Manager Legal & General

“ The Gerald Eve team have continued to prove themselves as one of our preferred agents on both the acquisition and disposal of our permitted development schemes. Gerald Eve were able to secure the acquisition of Circa, Bracknell at an attractive price and continued to advise us on the successful sale following PD approval. The technical knowledge and industry network of both the investment and development teams ensured that we achieved an excellent result. We will be working with Gerald Eve again soon! ” Steven Naylor Land Associate Stonegate

Experts in Permitted Development

Service offering

Why Gerald Eve? A Specialist PDR team We provide clients with access to an established network of surveyors working with specialist PDR expertise across service lines and sector groups to add value, provide local insight and deliver expertise as required. Exceptional Track Record A strong client list coupled with a deep understanding of the market has enabled us to provide exceptional advice and successfully execute complex transactions. Strong Client Partnerships We provide a dedicated team for each client. Maintaining the relationship is at the heart of our service and ensures we are always fully briefed on evolving changes within your business and property portfolio.

Gerald Eve’s advice and joined-up approach across numerous service lines during the sale of Hounslow Central was instrumental in securing the best price for this complex asset. In particular, Gerald Eve’s understanding of permitted development rights and the associated planning process helped shape the disposal strategy and timing of the sale. A thorough bid evaluation process by the development and investment teams meant that terms were agreed with the most suitable purchaser and that the transaction completed at the first attempt – which is not always the case in this complicated sector of the market. Nick Howitt, Director LaSalle Investment Management

A multi-disciplinary team of specialists with a deep understanding of every phase of the PDR process allows Gerald Eve to provide a holistic approach to identifying unique opportunities for our clients and continually add value. 9

Experts in Permitted Development

The team A dedicated cross service line team with a specific focus on PDR. Our linked-up approach and expertise provides the ability to manage and underwrite every step of the process from initial asset identification through planning, management on to an eventual disposal.






Mike McChesney Partner

Peter Dines Partner

Jeremy Tonge Partner

Simon Hay Partner

Guy Freeman Partner

Tel. +44 (0)20 3486 3461 [email protected]

Tel. +44 (0)20 7333 6292 [email protected]

Tel. +44 (0)20 7333 6322 [email protected]

Tel. +44 (0)20 7333 6260 [email protected]

Tel. +44 (0)20 3486 3471 [email protected]

Phil Weller Senior Associate

Luke Davies Associate

Michael Riordan Partner

Christina Hardy Senior Surveyor

Charles Boyes Senior Associate

Tel. +44 (0)20 7653 6828 [email protected]

Tel. +44 (0)20 7333 6409 [email protected]

Tel. +44 (0)20 3486 3472 [email protected]

Tel. +44 (0)20 3486 3463 [email protected]

Tel. +44 (0)20 7333 6402 [email protected]

Nick Miller Planning Consultant

Jason Nearchou Senior Associate

Tel. +44 (0)20 7333 6445 [email protected]

Tel. +44 (0)20 3486 3475 [email protected]

Gerald Eve is a firm of international property consultants based in the UK. We operate a national network of nine offices and an international alliance of independent real estate advisors covering Europe and major US markets. Whether you are a developer, land owner, property owner, investor or occupier, Gerald Eve provides independent, intelligent and relevant advice based on detailed market knowledge and sector understanding. Together we have the resource, experience and relationships to deliver the best property solutions for your business.

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Experts in Permitted Development

C a p it a l M ark ets

London (West End) 72 Welbeck Street London W1G 0AY Tel. +44 (0)20 7493 3338

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Cardiff 32 Windsor Place Cardiff CF10 3BZ Tel. +44 (0)29 2038 8044 Glasgow 140 West George Street Glasgow G2 2HG Tel. +44 (0)141 221 6397

West Malling 35 Kings Hill Avenue West Malling Kent ME19 4DN Tel. +44 (0)1732 229420