For developers, investors and building owners
How Much Does a Commercial to Residential Conversion Cost?
Sviatoslav JerdetchiiCEO & Founder of Craftex. Updated , 6 min read
The short answer
A commercial to residential conversion cost is never one price per square metre. It is the building, the build, fees, tax, finance and contingency, measured against what the finished homes are worth.
- The building sets most of the build cost: structure, services, fire safety and windows.
- Building work on a non-residential conversion can qualify for 5% VAT, not 20%.
- CIL can apply, and a long-empty building may lose its floorspace deduction.
- Price from a surveyed scope, and hold a contingency for what the strip-out finds.
Buying a cheap office to turn into flats looks like an easy margin. Then the survey finds no route for drainage, a fire strategy that needs a new stair, and windows that leave half the floor dark. The purchase price was never the real cost.
This guide breaks down the full cost of converting a commercial building to homes. It covers what drives the build cost, the taxes and levies people miss, and how to test the numbers before you buy. Have a building in mind? Book a site visit and we'll price it from a real scope.
What makes up a commercial to residential conversion cost
The real question isn't "how much per square metre?" It's whether the whole project costs less than the homes will be worth. These are the cost heads to budget for.
| Cost head | What drives it |
|---|---|
| Purchase and acquisition | Price, stamp duty, legal and survey fees |
| Planning and professional fees | Route, number of homes, design team |
| Surveys | Age and condition of the building |
| Building work | Structure, services, fire safety, windows |
| Kitchens and bathrooms | Number of homes and specification |
| External works and access | Entrances, bins, cycle stores, façade |
| Tax and levies | VAT rate, CIL, Section 106 |
| Finance and holding costs | Loan terms and the length of the programme |
| Contingency | How much the surveys left unknown |
Our commercial to residential conversion team prices every one of these from the building itself. For buildings that may suit another use, see commercial property redevelopment.
The building decides most of the build cost
Changing a building to homes is a material change of use under the Building Regulations. So the building must meet the rules for homes, not for offices. That's where most of the money goes.
- Structure. New openings, strengthening and sometimes new floors.
- Drainage and services. Every kitchen and bathroom needs a route to a soil stack, plus its own water, power and air.
- Fire safety. Fire separation between homes and protected escape routes.
- Sound. Insulation between flats, and from any shop or restaurant below.
- Windows and daylight. Every habitable room needs adequate natural light.
- Energy. Insulation, heating and ventilation to residential standards.
Each home must also meet the national space standard, with 37 m² as the smallest. How the layout fits the frame decides how many homes you get. Good space planning at the start can add a home or save a riser.
Why a price per square metre is not enough
A rate per square metre is fine for a first guess. It's dangerous as a budget. Take two buildings with the same floor area.
| Building A | Building B | |
|---|---|---|
| Floor plan | Shallow, windows on two sides | Deep, windows on one side |
| Drainage | Existing stacks near the core | No route without new risers |
| Fire and escape | Two stairs | One stair, height near 18 m |
| Services | Recently renewed | Original and failing |
| Likely cost | Lower | Much higher |
Our own conversions show the spread. Portsoken House, a warehouse turned into 1,550 sq m of offices with full mechanical and electrical work, was a £2.2M project. That is about £1,420 per sq m. Drake's, a 500 sq m railway-arch warehouse conversion, was £200K, or £400 per sq m.
Neither was a conversion to homes. But both show how far the cost per square metre moves with the scope. That's why we price from a survey, not a rate.
Taxes and levies most budgets get wrong
Tax can swing a conversion budget by a fifth. HMRC's VAT Notice 708 sets out the rates for conversions.
| Item | Usual VAT rate |
|---|---|
| Building work and building materials for a non-residential conversion | 5% |
| First sale or long lease of the new homes by the person converting | 0% |
| Architects', surveyors' and consultants' fees billed separately | 20% |
| Carpets, white goods and fitted furniture that are not building materials | 20% |
A home that hasn't been lived in for at least 10 years also counts as non-residential. Our guide to VAT on conversions explains the conditions.
The Community Infrastructure Levy can also apply. Floorspace lawfully used for six continuous months in the three years before permission can usually be deducted. A long-empty building often loses that deduction. Read our guide to CIL and Section 106.
We used Craftex for a shop-to-flat conversion in Chelsea — turning an old retail space into two rental units. Access wasn’t the easiest, but the guys handled it well, no drama. Quote was clear, no hidden extras, and they actually stuck to it, which is rare. Finish came out solid, exactly what we needed for rentals. Joe (PM) kept things ticking and communication was always on point. All in all, smooth job — would use them again for sure.👍
Finance and holding costs grow with the programme
Every month the building is unfinished costs interest, insurance, security and rates. On many development loans, interest is rolled up and paid at the end. So a late programme raises the cost even when the build price is fixed. Our guide to development finance explains how lenders size the loan.
Under Class MA, the conversion must be completed within three years of prior approval. That deadline belongs in the programme from day one. Strong construction project management protects both the date and the budget. Labour and material prices also move, as our review of rising construction costs shows.
How to test the cost before you buy
The cheapest time to find a problem is before you own it. A basic feasibility check should cover these steps.
- Confirm the planning route. Class MA prior approval or full planning permission.
- Survey the building. Structure, services, asbestos and any defects.
- Test a layout. How many homes meet the space standard, with daylight in every habitable room.
- Price the work. From the survey and layout, not from a rate per square metre.
- Run the appraisal. Total cost against the value of the homes, with a contingency.
HSE says to assume asbestos in any building built or refurbished before 2000. Survey for it before you price. Our guide to development appraisals shows how to test the margin.
At Allitsen Road in St John's Wood, we tested four design options for a 458 m² former pub. They ranged from four apartments to seven. The owner compared them on buildability, planning risk and viability before spending on planning.
Mistakes that break conversion budgets
Most overruns come from costs outside the main building contract. These are the ones we see most:
- Buying on the purchase price alone.
- Budgeting from a rate per square metre without a survey.
- Missing the 5% VAT conditions, or the zero rate on the first sale.
- Forgetting CIL on a long-empty building.
- Leaving fire safety and escape routes until after the layout is fixed.
- No contingency for what the strip-out uncovers.
We cover more in conversion mistakes to avoid. For where the market is heading, read our review of commercial-to-residential trends in the UK.
Seven checks before you commit
One team that prices what it will build
A conversion budget is only as good as the scope behind it. With design and construction in one team, the people who price the work are the people who build it. Surprises from the survey go into the price, not into a later variation.
We take on construction from £100,000 and development schemes from £3 million GDV. If you are weighing up a building, book a site visit and we'll give you a number you can test.
Before you buy or convert
- Is the planning route confirmed for this address?
- Has the building been surveyed, including asbestos?
- Does a test layout give enough homes at the space standard?
- Is there a drainage route to every kitchen and bathroom?
- Have you checked the VAT rate on the build and on the sale?
- Is CIL payable, and can any floorspace be deducted?
- Does the appraisal hold with a contingency and a later finish date?
