Wales is seeing more offices converted into residential properties, which could lead to a shortage of office space, according to new data from RICS.

The report showed that during Q2 2014, chartered surveyors in Wales saw a rise in the number of transactions of commercial properties being sold with Permitted Development Rights to be converted into residential properties.

UK-wide, a net balance of 49 per cent of respondents said this activity was having a ‘moderate’ impact on commercial market activity, while almost one in five (net balance of 18 per cent) said it was having a ‘substantial’ impact.

The picture across the country, however, was more polarised, with respondents in the north being less affected by PDR transactions (net balance of 49 per cent saying it was having ‘no effect’ on the market, compared with 32 per cent of respondents in the south saying it was ‘substantial’).

Further compounding shortage issues, overall availability of commercial property declined at its fastest rate since the commercial market series began in 1998 (net balance of 33 per cent more surveyors reporting shortages), with sharp declines in office and industrial space availability and the lack of supply to the commercial market is pushing investors away from prime location investments and towards ‘B’ grade investments.

In Wales, a net balance of 74 per cent of respondents indicated that investors were looking to add ‘secondary or tertiary’ assets in their portfolios, while in the South, 62 per cent signalled a growing appetite secondary space.

Haydn Thomas, of Newport-based Hutchings and Thomas Chartered Surveyors, said: “The issue in the main affects older stock where, as a result of the lack of demand for office space and the change of requirements from the traditional office user, owners are looking for alternate ways to utilise their property.

“In many cases and which can been seen here in Newport, it can be a question of development coming full circle. Some of the city’s larger, older properties which used to be residential and were converted to office use such as at Gold Tops, are now are being converted back to living space.

“There isn’t a real office availability problem in Newport currently but there may well be one on the horizon as the economy becomes stronger and there is resultant increase in demand for all kinds of office space. There is already a dearth of supply in Grade A stock and this difficulty could be exacerbated as the economic conditions improve as is widely expected.”

Simon Rubinsohn, RICS chief economist, said: “The latest results provide clear evidence that the economic recovery is broadening out across the country with rising employment increasing the demand for space in all sectors of the market. As a result, the balance of power is now shifting back to landlords with rent expectations turning increasingly positive.

“Meanwhile, the pressure in the office sector is being exacerbated particularly in popular locations by the gradual conversion of some secondary space into residential. While making a much needed contribution to the substantial shortfall of homes, there are understandable concerns that this could be creating a related problem for businesses looking expand their footprint as economic confidence grows.”