Flats developers swamp City

THE troubles in the City have triggered a deluge of applications to convert empty office buildings into flats, marking a new low point in the falling vale of the Square Mile's commercial property market.

Over the past six weeks, a series of property owners have applied to convert office schemes to residential, a trend that has not found favour with the Corporation of London's planning authorities.

The City does not want its vast pool of office space eroded by residential accommodation during the global slump in financial services. But developers with buildings outside the Square Mile's inner core say they face little option because of the poor market for offices.

Although it provides employment for more than a quarter of a million people, the City has a permanent population of only 5,000, most of which is concentrated in a handful of wards.

However, the growing demand for upmarket urban living space has spurred developers to pursue residential applications.

According to Property Week magazine, among the properties where a change of use is proposed is 95 Fetter Lane EC4, a building sold to private investors by Benchmark and JER Partners at the start of this year, but since sold on.

The Cheval Group has applied for the conversion of the Three Quays site on Lower Thames Street to residential and serviced apartments, while Riverview Holdings has applied for the conversion of Sir John Lyon House on High Timber Street EC4 to create 62,580 square feet (5,814 square metres) of flats.

Other smaller office buildings in locations such as Greystoke Place and Martin Lane, both in EC4, are also the subject of change-of-use applications.

City planning officer Peter Wynne Rees said he had noticed the upsurge in applications but insisted that many would be refused.

'The applications would only be supported if they were in areas which already had an established residential community, but we would not like to see them pepper-potted around the City. We were caught out last time. We don't want to have a handful of residents in every location in the City.'

Meanwhile, the depressed state of the City is continuing to drag down rents for Central London office space, which plummeted by 26.8% in the year to June, according to property services company Insignia Richard Ellis. Capital values fell by more than 7% over the same period.

The falls were by far the biggest for any sector in the commercial property market. Nationwide, the fall was 10.4% for rents and 5.4% for capital values. However, outside the South-East the picture was much more upbeat with rental growth of 1% and capital growth of 2%.

Overall returns remain high compared with almost every other form of investment at 10.4%, although this falls to just 2.3% for central London offices.