A reduction in lending by some of the challenger banks and Brexit could be behind the slowdown.
The number of office to residential conversions has fallen by 19% over the last year, according to peer-to-peer investment platform Saving Stream.
The number fell from 2,942 in 2015 to 2,388 in 2016 with a lack of funding available to property developers being blamed for the decline in conversions.
Liam Brooke, co-founder of Saving Stream, said: “When there is a clear need for more residential development across the UK, it’s surprising that the number of conversions has fallen over the last year.
“Office to residential conversions tends to be very successful and with the relaxing of the rules made permanent early in 2016 we would have expected the number of conversions to be on the rise.”
Saving Stream also blamed a reduction in lending by some of the challenger banks and Brexit as being behind the slowdown.
However Ashley Ilsen, head of lending at Regentsmead, said other factors were to blame.
Ilsen said: “Part of the issue here is the overdevelopment, in some areas, of commercial property to residential.
“This has in some areas caused commercial rents to rise due to a lack of stock; so whilst in my opinion permitted development has been highly successful, there are circumstances where the extended use of permitted development has perhaps caused an imbalance.
“Ultimately the planning system will need to be look at carefully by the new government and eventually a serious overhaul if we are to plug the housing gap.”
Brooke added: “Since the Brexit vote banks have reduced their exposure to the property market even further giving private investors access to better investment opportunities.
“Developers need to have ready access to finance in order to get these projects off the ground and the lack of bank funding available to developers presents an opportunity for other alternative forms of finance providers to step in and fill this gap.”
