The UK’s commercial real estate landscape is undergoing a turbulent patch. As vacancy rates in office and retail spaces reach historic highs, investors have a unique opportunity to turn challenges into opportunities through commercial to residential or semi-commercial conversions.

Since the pandemic, demand for commercial property has shifted significantly. As of Q1 2025, regional office vacancy rates across the UK have risen to 11%, with major cities averaging 10.5%. In retail, shopping centre vacancies stand at 5.5%, while retail parks are recording historic lows around 2.0%. In contrast, broader institutional retail centres continue to face challenges, with vacancy rates at 11.1%.

Meanwhile, the challenge of meeting housing demand remains high on the government’s agenda, leading to both legislative changes and increased funding support. One significant update involves the expansion of Class MA permitted development rights, now allowing Class E properties, such as offices, retail units, and gyms, to be converted into Class C3 residential use without requiring full planning permission.

A further regulatory change came into effect in March 2024, with the removal of the 1,500m² size restriction and the extension of the vacancy period requirement. These adjustments have made a wider range of commercial properties, including larger, occupied spaces eligible for conversion, unlocking faster development opportunities for brokers and developers.

The environmental benefits of repurposing vacant commercial properties should be a key consideration for both brokers and borrowers as well. Refurbishing existing buildings typically has a far lower environmental impact compared to ground-up developments, preserving resources and minimising disruption to local areas.

Furthermore, converting commercial properties into residential use isn’t the only route available to developers. Semi-commercial conversions, particularly in densely populated urban areas where retail, residential, and office spaces often coexist, offer strong value and flexibility.

One of the key advantages of semi-commercial assets is the diversification of income streams. By housing multiple tenant types, these properties reduce reliance on any single market sector. This balanced approach helps safeguard against cash flow challenges, especially during periods of economic uncertainty.

Overall, commercial conversion projects should not be overlooked. They support the delivery of much-needed affordable housing, respond to the rising demand for semi-commercial developments, and align with ESG-focused investment strategies, contributing to a more sustainable future. Our commercial conversion loan offers a well-rounded solution, which can be secured quickly and efficiently to deliver on all fronts.