The government is expected to relax the planning regulations on office-to-residential conversions come April for a period of three years, making it easier to transform drab out-of-use office blocks into much-needed housing stock.
UK pension funds have not traditionally invested heavily in residential homes, preferring commercial property with longer leases and less-demanding management.
But could the shortened planning rules create an opportunity for pension funds and institutional property managers?
Fidelity Worldwide Investment director of UK real estate Alison Puhar says the change could create long lease opportunities for investors, although the model is not mature.
"It's very possible to envisage that somebody might create a block of flats from an existing office building that they've found difficult to let and there could be an operator that develops a long lease which they can sell to an investor on low yield/high price and underneath that they would gather the income and organise the management and occupancy of the underlying flats," she says.
"That could be possible but this change of policy in terms of permitted development, the change of use from office to residential, I don't think is necessarily going to unlock investment potential."
Puhar says fund managers have been trying to crack widespread residential investment for some time and doubts the planning change will be a catalyst.
Aviva Investors client portfolio director for real estate Phil Ellis says offices have traditionally made up 90-95% of pension fund investment, but he has seen a growing interest in social housing funds and a desire to access residential returns.
"There are more and more reasons for pension funds to invest in residential and this would be one of the ways of which you could increase that stock," he argues.
"It would help. It won't be transformational and it won't be overnight, but there are more reasons to invest in residential now because they're looking for those sorts of returns."
He says it could also help pension funds with office investments which they are struggling to find tenants for, by giving them the option to look at the residential side.
However Kames Capital says the rule change could actually be a boost for commercial property managers.
Kames property investment director David Wise says property fund managers could buy some of the "huge pipeline" of secondary property being sold by UK banks.
"Much of this stock comprises poorer quality office buildings with limited tenant demand but where there may be a higher value alternative use," he argues.
Wise says property funds may become more confident investing in the secondary end of the commercial property market or holding residential property long-term.
"Instead of being left with a problematic building and having to compete with lots of others to re-let an office building that's just a bit too tired, to use the residential use as your exit could be quite attractive," he says.
He argues the most likely scenario is that active managers will take the gain in value and sell the property on to a specialist for conversion.
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