Should I convert lounge and add 3rd bedroom?

I for one certainly wouldn't disrupt that which is working well. Along with the added burden of bureaucracy, leasehold obligations, which could quite easily go pear shaped.

This might work in a student market where they spend the majority of their time in their own rooms. I doubt it would be practical or well accepted in a professional let.
Subdividing like this can work if you have windows in each room, if you end up without a window in one room you may well be in breach of fire regulations.
Finally 3 people often create an environment where 2 get on very well and 1 is left out, so you may have higher tenant churn than you'd like.

I'm with Paul Shears and Bill O'Dell 100% on this.

You might be able to alter the flat if you jump through all the hoops...... but 'just because you can doesn't mean you should'. That's the category I'd give this enquiry.

Greater depreciation, churn + there will always be better flats that the best of the tenants will go for. You'd be taking your rental downmarket, likely shortening the life of your tenancies in it and increasing your time and workload for a bit more rent (if the rental proposal is found to be attractive - but only after you've done a lot of work would you find that out).

Why would you want to speculatively do all that?

Lord (Landlord of 34 years)

I'd wait to see what the rental market is looking like in London after the dust settles from Covid. Rents are falling in London as I am discovering, because people prefer to live outside and work from home, now that has become so mainstream. In your shoes I would wait till the current tenants' lease ends and then see how it looks. Maybe people will be flocking back into the office blocks by then or it might seem more sensible to rent to people who prefer a more prestigious and spacious sort of flat.

Leaving aside all the extra work inolved described by others, consider how many times have you re-let and how well it went. Your answer depends on your local market and how well you know it and the kind of tenants you want.
I find maximum demand for 2-beds, I can pick the best tenants, charge highest rent and make the best %return on capital. Knowing what I know now, I'd always look for a 2-bed.
Financially you'll have to factor in a longer void while the work is done and plan for a lower rent/tenant afterwards. New builds aren't generous for space so cramming in a 3rd bed sounds tight. If your target market is well-paid office workers around Canary Wharf area I think they'll be less interested.

Not sure why you would want to do this other than greed. One question, you say the Balcony will serve the bedroom, will the living room have a window and natural light, if not you cannot do it. A kitchen can be windowless but not a living/dining room, these must have natural light.

Reply to the comment left by Dec P at 21/05/2021 - 10:18
Dec, you claim to be aware of the HMO regs and legalities, but don't appear to be paying any attention to valid negative comments. Ian Narbeth has clearly stated that you are breaching the AST agreement by carrying out this work. So you WILL lose the tenants and be liable for any penalties that you may incur by breaching their AST and their right to quiet enjoyment.

If the property is empty, then by all means go ahead, but it is not a choice between a greater yield and losing the current tenants. With this work, you have no current tenants.

Thank you all for the useful feedback

You need to look at what you are going to create I own numerous flats in central London and I never do this.

Normally you can't have a bedroom/room opening off another room - this is for fire reasons especially if you above the first floor as its two high to jump out the windows - yes that is practical from a first floor window.

There is always more money in letting out by the room or by the bed but you incur more transient tenants and more ware and tare

Reply to the comment left by Dec P at 21/05/2021 - 10:18Reducing the shared living space may prompt existing tenants to leave costing you money, and cause reduction in rents for existing rooms losing you money. The extra room will not sell for a premium rate so you may make far less than you hope for. In addition, the main demand of tenants NOW after Lockdown experience is more Working From Home - more bedroom space and more living space, which will work against your plans. Lastly, check existing usage....some landlords have said their separate lounge was never used so they converted to a bedroom. Others said the kitchen was too small and wished they had expanded this into the lounge instead because more tenants increased pressure on the small shared kitchen space. If yours is a single room shared kitchen lounge space best not to make it smaller. Frankly there is so much demand for more space that your plans are contradicting market pressures.