EMPTY space above a York city-centre shop is to be converted into apartments.

Property investment company The Helmsley Group has bought the building, which contains four retail units, including Thomas The Bakers, and three empty upper floors, on the corner of Kings Square and Church Street, for £1.5 million.

The move is in line with a council initiative to convert empty upper floors into city-centre accommodation to help address York’s housing shortage.

But John Reeves, chairman of the Helmsley Group, said converting such space to residential use was not that simple.

The company has set up Kings Square Venture, a special fund made up of private investment from a syndicate of investors, which contains no pension-fund money, to be able to buy the building.

Mr Reeves said: “Where a property is owned by a private pension fund, and very many are, they are not allowed to convert to residential under pension fund rules.”

He said 60 per cent of Helmsley Group’s investment funding was made up of pension-fund money, and the main reason more floors above shops remain empty is because of red tape surrounding what pension funds can do with properties.

The group bought the building from a pension fund, which is why it has never been converted before, he said.

He said living accommodation over shops did not generate large profits for investors, and presented challenges such as insurance and the demands of residential tenants and full repairing leases.

“We specifically set this fund up deliberately so it could be converted. What’s the point of leaving Grade II Listed space empty in the middle of York?

“It is not the most profitable route for development, but it is profitable and even if we break even we would do it because it puts the property back into use.

“A property that’s occupied is looked after and this building has been empty upstairs for five to six years.”

Syndicate members are expected to gain an initial yield of 8.5 per cent, expected to climb to above 12 per cent once the two-bedroom apartments are completed and sold.

The group has planning permission and is looking for a builder to handle the sensitive conversion.

Mr Reeves: “It’s terrific to be able to buy well for clients as well as be able to bring back into use space above retail that can be converted into much-needed living accommodation.

“It’s a win-win situation – creating new homes for sale while enhancing clients’ returns in the process.

“We would love to buy more if we could find them.”