Weighing up the costs of conversion vs new build

A lack of supply in the residential market place and an acute increase in values has prompted an increasing number of developers to convert former commercial buildings into apartments.

Westminster City Council which encompasses some of the most sought after parts of London — including Belgravia, Mayfair, Marylebone, Knightsbridge, Hyde Park and Bayswater — favours such conversions viewing them as a way of bringing back as much life as possible to the capital.

In prime locations, commercial buildings can be purchased for as little as £1,000 (Dh5,762) a square foot, and sometimes less. Following refurbishment these can be worth up to £2,000 a square foot. A healthy profit margin can be achieved in some instances, with conversion costs likely to be between £200 and £300 a square foot depending on how complicated the building is to convert and the level of specification offered.

That said, there are some guidelines which potential investors and developers in such schemes should be aware of before embarking on such a conversion.

It is vital to weigh up the cost of conversion versus new build; although fitting out an existing property might seem like the cheaper option, commercial space often requires more skilled labour to comply with standards for residential use, therefore adding to the overall cost of a project.

Additional building requirements are often applicable to dwellings such as Part L regulations requiring compliance to conservation of fuel and power. In order to avoid costly mistakes it is always worth checking in advance.

Assess points of access: Given that a lot of commercial property is situated within town centres where zoning restrictions can affect parking and access routes, it is important to evaluate this before purchasing the property. You do not want to create your dream home, only to find you have to walk several miles to get to your car, or worse still, pay hefty parking charges each year.

Therefore, it is worth contacting your local council to clarify rights of way and parking arrangements.

Similarly, as some premises might have shared access to additional space upstairs (such as an existing flat), it is worth speaking with the owners to find out where you stand, as this will no doubt impact on any internal changes you plan on making.

Additional external works might not be exempt: It must be remembered that the legislation in question applies to "change of use" only and so any extensions or renovation of shop fronts are likely to be subject to regular planning permission. Additionally, changes to high street premises, especially in market towns might be bound by covenants that require the facia to remain in sync with the surrounding area — this could also add to the cost if specific materials are required.

Take a good look at the property's surroundings: Look at the whole area to get a feeling for it and be sure you are comfortable living somewhere which will not be purely residential. While you might be closer to the shops, you could in fact be further away from a school.

Noisy neighbours might also need to be considered if your property is located near to bars, nightclubs and takeaways.

Be prepared to wait: Some local authorities adopt a blanket policy when considering change of use planning applications whereby the property must be placed on the market from anywhere between six and 12 months.

If the owner can prove there is no market for the building commercially, they may consider a change of use.

A prime example of a well thought out conversion is a development close to Marble Arch and Hyde Park on Great Cumberland Place in Marylebone.

The building is being extensively developed by Galliard Homes to provide six individually designed apartments each occupying an entire floor from lower ground to fourth floor level with a private lift serving each apartment. Completion is due in December 2012.

The writer is the head of London-based Kay & Co.