Planning and development activity isn’t the only area affected by the recently-announced changes to the Planning Use Classes Order (UCO); they could have a bearing on property valuations too.

On the face of it, these changes provide greater flexibility for landlords (and tenants to a degree) to change uses across England without the need to obtain planning permission. This is through the consolidation of multiple uses into the new Class E ‘Commercial Business and Service’ and the creation of a new Class F1 and F2. The expectation is that these changes will enable properties to keep pace with the ever changing markets and demands for particular use types and to enable redundant retail accommodation to be repurposed into a viable alternative use. As underlying value of all property lies within its designated use, landlords may also benefit by being able to select the most appropriate or valuable use within Class E for their property, realigning their portfolios accordingly and remaining reactive to market conditions. 

With this in mind, we expect landlords to start to review their asset management and/or leasing strategies as a result of this greater pool of potential uses and occupiers. In turn this could give rise to changes in valuations with voids shortening, smaller incentive packages, increased rents but also potentially higher refurbishment costs. This benefit may be further echoed in the lending market where it may give some distressed borrowers additional opportunities to address their problems.

However, whilst values could remain strong as a result of this greater flexibility, factors such as supply/demand and existing layout of properties will need to be carefully considered. The cost of making these changes may outweigh the value uplift. Units could continue to remain vacant producing increased uncertainty around tenant groups that are not performing with potential for further marginalisation. In value terms this could further increase voids, increase incentive packages and reduce rents, creating a more negative impact. Furthermore, in some cases, establishing ERV’s for the replacement use could be challenging if there is a shortage of truly comparable evidence for properties that have been subject to similar conversions. Valuers will have to remain vigilant to ensure valuations produced are robust. 

It is not just town centres that will be affected. Out of town parks will have the opportunity to improve on their existing offering. With potential to introduce new amenities such as gyms, creches, shops and restaurants further enhancing their attraction, values may be automatically driven up as space is repurposed to react to the market.

Moving away from Classes E and F, the Sui Generis use class has expanded to include uses such as pubs, cinemas and hot food takeaways. Now that uses that fall under this category cannot be changed to any other use (including any other Sui Generis use) without express planning permission this may result in less versatility and devalue certain use types.

In practice, properties will still be restricted by the use class stipulated in existing leases so any clarification around the impacts of these changes will inevitably be delayed until new leases are drafted. Site specific title information will also be required before giving effect to any change in case there are restrictive covenants or lease restrictions which exclude certain uses – both Class E and Sui Generis.

Overall, the strides the government has taken and the resultant flexibility will be welcomed by many, enabling landlords and tenants to respond in a more agile fashion but at this point there are still many unknowns. Until we see how it works in practice and how different use types are affected, establishing how we put a value on it remains a challenging question to answer.