Today’s landlords are facing a market where Kent and London businesses are demanding even more from their office space. Business expectations have increased in terms of the quality of the office refurbishment, such that they are environmentally sustainable, amenity rich, tech enabled and are designed for health and wellbeing.
The Cost Of Not Acting
It’s clear that standing still is no longer an option for Landlords, delaying action, in the hopes that the market will change, is a risky prospect that could lead to higher costs and financial risk, as time goes by. Landlords must update and upgrade their office space if they want to stay competitive, attract businesses and demand higher lease rents.
A landlord that fails to modernise risks a number of problems including becoming uncompetitive as their office space becomes outdated. As other office spaces are refurbished to become high quality grade A spaces, an outdated office in comparison can find the gap widening in terms of being able to rent and command good rental prices, or worse still, they may be unable to lease their office space and as a consequence will suffer from a loss of rental income which is normally used to offset business rates, maintenance and security costs.
Building and Estate Services Ltd (BAES) agrees and states “The average cost of a void period at the 3–6-month mark is around £9,000 per vacant unit per month, and that doesn’t even include marketing, agent fees, or legal costs. These costs compound the longer your space sits empty, particularly in a competitive market where new tenants expect turnkey readiness.”
Building Atlas explains “In the race toward a greener built environment, much of the focus has been on operational energy savings, but there’s a silent financial penalty looming for property owners who delay action. This is the brown discount: a measurable decrease in the value or marketability of commercial buildings with poor sustainability credentials, such as Energy Performance Certificate (EPC) ratings. These lower-rated properties are increasingly being priced down by tenants, investors, and valuers alike. As regulations tighten and market expectations shift, the brown discount is becoming more pronounced, and ignoring it may be one of the most expensive decisions a landlord can make.”
According to Savills “Essentially the ‘brown discount’ is a direct result of the do-nothing scenario, which is considered to have more severe negative implications for property values than the positive implications of a green premium. The problem is one of inactivity and while this might sound like the result of apathy it could also be because of a lack of opportunity to change.” Savills goes onto say that “they had seen depreciation of 21%-30% due to brown discounting.”
Failing to bring an office into compliance may also result in regulatory issues. The UK’s Minimum Energy Efficiency Standards (MEES) already ban leasing commercial buildings below Energy Performance Certificate (EPC) E. The UK government has set a two-year compliance window to achieve a minimum EPC C rating between April 2025 to April 2027 under Minimum Energy Efficiency Standards (MEES). From April 2030 all non-domestic rented buildings must have improved the building to an EPC ≥ B or register a valid exemption.
Building Atlas also states that “retrofitting costs are increasing due to inflation, material shortages, and rising demand for sustainability-aligned contractors… [there has already been] a tremendous increase in construction material costs in the past few years. It is likely that they will remain high and continue to increase. So delaying refurbishment is also likely to increase costs.”
What Are The Benefits Of An Office Refurbishment To Landlords?
When an office is refurbished to top tier standards which includes meeting environmental regulations, it comes with a number of benefits for the landlord, from improving the value of their building, commanding higher rates, attracting longer-term clients, and reducing periods where the building or office space is empty. It can also lead to lower energy costs.
Companies are increasingly willing to pay more for office space that are as an example, eco-friendly. A report by property analytics software firm CIM found that of “those surveyed the majority are looking for sustainable office space. 41% of respondents stated they would be happy to pay between 10-14% more for green office space. 49% said “a property’s environmental performance and overall sustainability would ‘very much’ influence their choice of office.” 55% said they “expected” to see proof that landlords were making efforts to ensure their building and office space reached net zero with 53% stating that they wanted to reduce their day-to-day operational and energy costs and this would also significantly impact their choice of office space. 89% considered net zero as an increasingly important part of employee acquisition and retention. Only 6% said they would be unwilling to pay more.”
These findings are also backed up by Savills who state that “..based on over 550 lease records, Savills analysis shows that buildings with energy labels A+++ and A++++ command rent premiums of up to €122 per sq m/year compared to standard A-labelled buildings.* In percentage terms, buildings with an A++++ label rent for 89% more than those with a standard A label (€258 vs €136 per sq m/year). A+++ buildings rent for 51% more, and A++ for 35% more. The “green premium” remains significant even after controlling for variables such as building age and location.”
Re-Leased’s Tenant Health Index platform which captures live rental collection data directly from over 90,000 unique leases from across the country found “the office sector has a variance of +7.30%, reflecting landlords’ ability to command higher rents from tenants who remain in prime locations. This suggests that retained tenants are opting for premium spaces, paying increased rates to secure quality offices that match evolving work requirements.”
In its United Kingdom State of Commercial Real Estate (CRE) Leasing Report 2024, Re-Leased found that average office lease lengths increased by 27%, rising from 2.9 years in Q1 2023 to 3.7 years in Q1 2024. Marking the end of a three-year decline. There was a 69% growth in 3–5-year office leases. Leases lasting 5-10 years increased by 28%, and leases of 10+ years more than doubled from Q1 2023.
CEO of Re-Leased, Tom Wallace says: “There are a number of driving forces increasing the shift towards longer lease agreements primarily across office and retail. The UK commercial real estate market is showing signs of stability, with businesses and property owners adapting to new market dynamics. In the office sector, we see a continued flight to quality as companies are committing to extended leases to secure prime locations. Retail shows optimism with extended leases, signalling a strong commitment to physical stores. The industrial sector remains stable, with a blend of longer leases and flexible terms to meet evolving needs. This shift towards longer leases highlights the mutual desire for stability and strategic planning among tenants and landlords.”
Savills points out that the rental gap between new builds and refurbished offices has narrowed significantly and states that “The average gap between prime new build and refurbished rents across the UK currently stands at just £1.50 per sq ft, half the average gap recorded in 2019. This convergence highlights the increasing value occupiers place on well-executed refurbishments that deliver both character and performance.” They also point out that where refurbishments are “well-executed” they are “emerging as frontline solutions… and achieving premium rents.” They finish by saying that “In a landscape where quality, ESG, and adaptability are paramount, refurbishment is no longer a fallback, it has become a strategic response to the evolving demands of modern occupiers and a direct answer to a stalled development pipeline.”
Refurbishments can also help to reduce overall energy costs when outdated equipment is replaced with more energy efficient equipment. According to Oaktree Electrical “Energy-saving systems reduce electricity use and directly lower monthly utility bills, often by 20–30%, depending on the building’s existing condition.” The Mechanical, Electrical, and Plumbing (MEP) Journal goes even further and says that “Energy-efficient systems and integrated building management system can reduce utility expenditures by 30-50%. Buildings with superior MEP infrastructure demand higher rental rates and sale prices.”
What Are Kent and London Businesses Looking For From Their Office Space Today?
It’s important to understand what businesses want from an office space in order to ensure that any office refurbishment that’s carried out is tailored towards business expectations and needs.
Businesses are looking for an office space that supports them and their staff, allows them to attract new staff, retain current staff, enable productivity, and meet a number of requirements, some of which are outlined below.
Flexibility
In today’s modern workplace it’s important to businesses that workspaces are flexible and reconfigurable to allow them to adapt to changing circumstances and needs, something that became a priority during the pandemic. Office spaces need to be able to adapt to a tenant’s needs and do so quickly and easily to make them attractive and suitable for a variety of different functions and business types.
As an example, all businesses have different private and collaborative space requirements; therefore, an office needs to be adaptable for individual businesses to allow the reconfiguration of office space to meet their different business needs. Finding the right balance between private and collaborative space is vital for any business in order to ensure staff have the right type of workspaces and can work in private when required to avoid distractions.
The CBRE say flex space demand is rising. They state that “There’s a growing appetite for flexible workspace solutions, with occupiers now targeting 29% of portfolios in flex by 2027 (vs 21% last year), driven mainly by a desire to avoid capital commitments (64%).”
Savills agrees and says “Corporates now make up 47% of flex office occupancy worldwide, up from just 13% in 2020, according to Workthere’s fifth Flexmark operator survey. Global corporates represent 29% of flex occupiers, while national corporates account for 18%. This signals a new phase in corporates’ workplace strategy as they place greater emphasis on adaptability.”
A survey from Orega found that “Over one third of businesses (rising to 42% in London) say they plan to reduce space requirements – with 59% of those businesses saying they would consider some form of flex space.”
Having modular walls, moveable partitioning, adaptable zoning and work spaces, multi-purpose spaces and flexible and adaptable furniture solutions allows businesses to evolve and change layouts. Having this adaptability built in can allow office space to be as flexible as required. When change is required, the space can be adapted with little downtime. Being able to easily change a space’s layout or function to meet a new business’s needs makes it more versatile and easier to rent to new tenants.
Sustainability
More and more businesses are looking to move into sustainable office space as they aim to boost their brand reputation by meeting their environmental, social, and corporate governance (ESG) responsibilities, reduce their energy consumption, improve employee health and wellbeing and productivity, and make it easier to retain and attract new staff.
According to Work Life there are a number of direct benefits from renting sustainable office space. They include up to a 30% reduction in energy consumption through the use of smart building systems, 75% less energy used through the use of LED with motion sensors, cutting disposal costs by up to 30% through comprehensive recycling and waste reduction strategies, reducing water bills by 30-40% through water efficient fixtures, all of which can lead to a 22% lowering of operating costs. Work Life states a “10,000 square foot office typically saves £18,000-£27,000 annually in energy costs.”
Numerous studies have shown that workplaces designed to be sustainable provide a healthy work environment which can lead to increased employee productivity levels. Science Daily reports that a UCLA-led study found that companies that voluntarily adopt international “green” practices and standards have employees who are 16% more productive than the average.
Professor Magali Delmas, an environmental economist at UCLA’s Institute of the Environment and Sustainability and the UCLA Anderson School of Management explains “Adopting green practices isn’t just good for the environment. It’s good for your employees and it’s good for your bottom line. Employees in such green firms are more motivated, receive more training, and benefit from better interpersonal relationships. The employees at green companies are therefore more productive than employees in more conventional firms.”
Work Life agree. They state that staff who work in green buildings show 26% higher cognitive function, have 15% fewer sick days, and show an increase of 23% on average in self-reported productivity scores. Work Life go onto say that 84% of professionals under 40 look at a company’s environmental policies when they are looking for a job, companies who are seen to be “green” receive 37% more applications and their recruitment cycles are 31% shorter, employee turnover rates are 33% lower and exit interviews show a 41% decrease where workplace dissatisfaction is given as the reason for leaving.
This is backed up by a survey of 1,000 employees which found that over 70% of those surveyed were more likely to choose to work at a company with a strong environmental agenda and nearly 40% of millennials said that they’ve chosen a job in the past because the company performed better on sustainability than the alternative. The survey also found that around 70% of respondents would stay with a company in the longer term if they had a strong sustainability plan whereas 30% said that they’d left a job because of a company didn’t have a sustainability plan.
IT Readiness
Businesses value tech-enabled office space and expect technology such as smart lighting and climate controls, occupancy sensors, systems to monitor energy usage, meeting booking technology, integrated AV and security systems to be seamlessly integrated into any office space that they are looking to occupy. Systems should also be easily scalable to future proof business needs going forward.
The type of technology listed above enables businesses to hit the ground running in terms of being able to start working on day one, support hybrid or remote working and be sure that when staff do come into the office, they know there will be a desk for them to use. Having security systems such as reliable power backups, robust firewalls, secure server rooms, and secure access, where required, is also for all businesses.
Being able to monitor and react to real-time data allows businesses to make any required changes quickly and easily and to ensure they are being energy efficient and can meet the occupancy and productivity needs of their staff.
Wellbeing
Through the numerous studies and research papers published, businesses know that office design can impact staff health and wellbeing. As a consequence, businesses are looking for office space that is designed with wellbeing in mind.
Spectra 360’s “9 Key Workplace Factors That Significantly Affect Employee Health” suggests that “time at work, and the environment can greatly impact our physical, mental, and social well-being.” They go onto say that “As an employer or manager, creating a healthy work environment is necessary. The health of the workers affects the whole organization. A happy and healthy workforce means more productivity, fewer sick days, and less stress and burnout.”
Spectra 360 states that “the physical environment of a workplace greatly affects employee well-being. Factors like poor air quality, poor lighting, and too much noise can cause fatigue, headaches, and trouble concentrating. On the other hand, a well-maintained workplace with good ventilation, natural light, and a comfortable temperature can improve mood, focus, and overall well-being.” They also explain “setups, like uncomfortable desks, poor lighting, and repetitive movements, can cause musculoskeletal disorders (MSDs) like neck pain, back pain, and carpal tunnel syndrome. The constant discomfort and injuries can make people less productive, cause more mistakes, and lead to more employees leaving their jobs to find healthier work environments.”
The Workers Union say “Working conditions have a significant effect on the health and wellbeing of employees. Poor working conditions can lead to physical and mental health issues, decreased productivity, and increased absenteeism.”
Ensuring there is noise mitigation in place, that natural light is utilised wherever possible (and where natural light is not available that light sources that mimic natural lighting such as LED lighting are used), providing the ability to adjust lighting levels, that temperature can be controlled, incorporating planting and other natural elements such as wood, stone and fabrics like cotton can all be utilised to provide an environment that is tailored towards health and wellbeing.
It’s clear that landlords must upgrade office spaces to stay competitive. In an evolving market, flexibility, sustainability, IT readiness and design for health and wellbeing can attract premium tenants and prevent “brown discounts”. Failure to act risks non-compliance with statutory regulations as well as a significant decrease in asset value.
JBH Refurbishments, Experts In Office Design and Refurbishment
JBH Refurbishments are a cat a and cat b fit out contractor and have over 30+ years experience in Kent and London inclusive office design, office refurbishments and fit outs. We understand what’s required to carry out an office design and refurbishment and can provide the right expertise for your Kent or London office refurbishment. You can contact us on 0333 207 0339 or via our contact page for a free on-site consultation.
