A building that is half empty, coming to the end of a lease or needing work leaves its owner with a decision. The first option put forward is often the one the adviser is paid on: the agent suggests a letting or a sale, the builder suggests the works. Each may be right. The way to know is to set all of them side by side.
The options
- Hold as it is. Keep the building and the income, with only the repairs it needs.
- Refurbish and re-let. Spend money to reach a better rent, a better tenant or a longer lease.
- Change the use. Offices to homes, a light industrial unit to offices, a shop to something the area needs more.
- Extend or split. Add floor space, or divide a large unit into smaller ones that let more easily.
- Get consent, then sell. Secure planning permission for a better use and sell with it, without building anything.
- Sell as it is. Take the money now and put it to work elsewhere.
What decides it
The building. Its condition, its services and how it is laid out decide what each option really costs. A frame that suits flats, or a roof that needs replacing either way, changes the answer.
The planning position. What the building is lawfully used for now, what can change without a planning application, and what the council is likely to approve. Some changes of use are allowed under permitted development; others need full consent.
The energy rating. A commercial building generally cannot be let with an EPC below E unless an exemption is registered. If the rating is low, any route that involves letting carries the cost of improving it.
Demand. Who would rent or buy each version of the building, at what level and how quickly. Your agent’s view is the starting point here.
Your own position. How long you want to hold, how much you can spend, whether you need the income, and how you are funded. Tax can change the answer too, so your accountant should see the options before you choose.
Compare them on one basis
For each option, set out four things: what it costs, including fees and finance; how long it takes, including any time the building stands empty; what could go wrong, and how likely that is; and what you are left with at the end, in income, value or cash. Options that look far apart on headline value are often close once time and risk are counted, and the reverse.
Common mistakes
- Forgetting the cost of empty time. Business rates relief on an empty building usually runs out after three months, or six for industrial property. Insurance, security and service charges continue.
- Doing things in the wrong order. Selling before securing a consent can leave most of the value with the buyer. Starting works before planning is settled can mean paying twice.
- Treating the energy rating as an afterthought. It can decide whether a letting is lawful at all.
- Taking the first option because it is the first. The best answer is often a mix: consent for part, sale of part, a light refurbishment of the rest.
In North London, one client owned a house with land behind it. Consent was secured for four houses on the rear land. Selling the rear site on its own, and converting and letting the house, captures more value than selling both together. Read the case study.