by Andrew Butt
The new B1 Business Class, introduced as part of the 1987 Use Classes Order, was conceived primarily to surmount the problems which the earlier 1972 Order had posed for out-of-town hi-tech development. Hi-tech uses had awkwardly straddled the office/light-industrial split laid down in the 1972 Order, and it became apparent that these time-honoured use classes no longer matched the conditions of the day. Calls for deregulation from the property industry accorded with the free market philosophy of the Conservative Government, leading to revision of the Order into its current form.
Inner cities were not at the forefront of these considerations, but they, too, stood to be greatly affected by the new B1 Class. These areas still retained much of the traditional industrial property which had grown up around the city centres in the Victorian era. In many boroughs the planners had jealously guarded this industrial floorspace against change, believing that such a policy would protect blue-collar employment. The execution of these policies depended largely on the separate classification of light-industrial and office uses; in amalgamating these uses, the new business class therefore posed a severe threat to the existing land-use patterns in these areas.
The EC1 area of London (Smithfield, Clerkenwell, Finsbury and Hatton Garden) — nestling close to the City at a time when the pressures for office development had never been higher — had all the characteristics to make it particularly susceptible to the likely impact of the new class. But the outcome was uncertain: would the area fall to wholesale office redevelopment or would the planners find ways to maintain their policies in the face of the new regulations?
The immediate effect of the new UCO was to expose all the area’s existing light industrial floorspace to automatic conversion to office use. With rental values of between £4 and £10 per sq ft for light industrial/studio space, and up to £25 per sq ft for offices prevailing at the time the new Order came into force (June 1987), the incentive for landlords was obvious. This differential was high enough to cover considerable refurbishment costs, and many predicted a flood of office conversions; but investigations into the area in the early summer of 1988 showed that a surprisingly high percentage — over 75% — of industrial floorspace appeared completely unscathed.
The main factors preventing change were, most obviously, the inertia introduced into the market by existing leases on light-industrial terms but, more importantly, the high percentage of owner-occupation by small traditional businesses. For many of these the dramatic increase in asset value conferred by “business use” was a windfall to be put away for a rainy day rather than a pressing reason to liquidate their properties — but this attitude is unlikely to endure in the longer term. Another factor reducing the immediate impact of the new Order is that not all industrial buildings are immediately suitable for conversion into offices, and while the new Order removed the need for planning permission for changes of use, approval was still required for any substantial building works which accompanied them. Notwithstanding these considerable forces of inertia, there was every indication that the transfer of industrial floorspace into office use was taking place — by a steady flow if not by a flood.
Those industrial properties which were suitable for conversion to office use enjoyed a considerable uplift in value on the introduction of the new class. In most cases, conversion works were required to release this increase, but analysis of a number of cases where little or no work was necessary showed an average increase in rental and capital value of 62.5%. Where a substantial programme of refurbishment was undertaken, this figure could obviously be very much higher. Many buildings in EC1 change hands on a freehold basis — a fact which reflects the piecemeal ownership of the area. Prior to June 1987 light industrial buildings in Smithfield were changing hands at £30 to £50 per sq ft freehold, but by early 1988 almost any industrial building in the locality was worth in excess of £100 per sq ft in its raw state. While it should be stressed that the market was rising rapidly at this time in any event, there can be little doubt that the new UCO was one of the principal factors behind this increase.
In June 1987, many thought that the new business class would lead to the widespread incursion of City-style office development in EC1. In fact, this view — while not wholly incorrect — turned out to be simplistic. By placing many industrial, studio and mixed-use properties into the B1 “melting pot”, the new regulations have greatly assisted the winning of planning permission for office schemes; but development in the area is still constrained by the small size of existing plots and freehold ownerships. Hence a pattern of piecemeal redevelopment and refurbishment has established itself. This provides small- to medium-sized, self-contained office buildings which often display considerable individual character. Such properties are ideal for the growing breed of small companies and partnerships who prefer to purchase their own headquarters on commercial mortgages rather than rent anonymous tracts of modern office space. Rather than becoming an annex to the City, the area therefore looks set to grow into an exciting “office village”.
Strongly allied to this is the effect that the new class is having upon the type of occupiers in the area. Traditional industries had been in decline for many years prior to June 1987, but the industrial floorspace left vacant by their demise had been ardently protected by planning policy. Much of this space therefore came to be occupied by “studio” uses: modern service activities which were able to squeeze, albeit dubiously in many cases, into the Class III definition of light industry — graphic design and photography, for example. With the advent of the 1987 UCO, this space became exposed to a much wider market — the new “business use” market.
Many office users have now joined studio users as occupants of this building stock, and are displacing those studio users who are unable to cope with the resultant rise in rents. The area is proving especially popular with individualistic creative and media companies, and also with professional partnerships, both of these groups having traditionally favoured City fringe locations (Covent Garden and Holborn, for example). For small partnerships, especially, the opportunity to purchase a freehold headquarters as an asset for an in-house pension fund is particularly attractive.
As the new business class struck at the heart of industrial floorspace policies, it was greeted with dismay by many inner-city local planning authorities. The majority of EC1 is controlled by the London Borough of Islington. The attitude of Islington’s planners was no exception, but while they elected to fight for the retention of industrial floorspace wherever possible, their outlook was tempered by realism, and it was quickly perceived that “the line would have to be pulled back”.
In common with many other hostile authorities, Islington initially sought to employ the extensive use of restrictive conditions limiting permissions to B1(c) — ie light industrial uses only. Notwithstanding its legality, this practice is contrary to the express advice of the Secretary of State contained in Circular 13/87 and, despite an initial period of uncertainty, it has become apparent from recent appeal decisions that these conditions will only be tolerated in exceptional circumstances. A recent appeal in Islington saw the planners’ arguments for the retention of a light industrial condition on the grounds of maintaining local character thrown out by the inspector. In the face of such results, this practice seems likely to diminish.
In any event, policies which run contrary to the new UCO stand little chance of success unless they are enshrined in the local plan. For this reason boroughs such as Tower Hamlets and Hackney have drafted extensive revisions to their plans in an effort to mitigate the effects of the business class. Islington have shelved any revisions of this type pending preparation of the new Unitary Development Plan next year.
Following the deregulation of the light industrial class, the continuing sanctity of the B2 General Industrial class has taken on a new significance for planners. Revised policies have been drawn up to protect and promote this last bastion of true industrial floorspace, and efforts are made to include as many buildings as possible within this classification. However, the legal dividing line between light and general industry is extremely hazy, and many buildings in the area have been the subject of long debates between planners and landowners. This has provided much work for planning consultants and lawyers, and has resulted in a spate of applications for section 53 determinations. But the limelight attaching to general industrial uses will be shortlived, as the new General Development Order 1988, which came into force on 5 December 1988, grants planning permission for all changes of use from B2 to B1. This is likely to lead to a further spate of development activity, as yet a further crucial planning obstacle is removed.
Demoralised by the impact of the new UCO on one of their cornerstone policies, and increasingly unable to extract planning benefit in terms of industrial floorspace, the planners have sometimes resorted to the unhappy practice of accepting (readily offered) cash benefits under section 52 agreements in return for planning permissions which run contrary to their policies. In Islington, at least, this appears to be a symptom of extreme frustration rather than the shadowy practice it is often taken for. Certainly developers seem far happier with the arrangement than do the planners; but such agreements will probably diminish now that the outcome of appeals is more certain.
The new business class has therefore promoted considerable change in the area, and its effects will continue to be felt for some time to come. However, the EC1 area had begun its transformation long before June 1987, and in this sense the new UCO has merely served to accelerate more profound underlying forces which were already at work.
The Government at least should be satisfied — within the B1 sector market forces are now enjoying considerable freedom at the expense of planning control.
