London office refurbishment has been higher in number when compared to new office builds in office construction in central London for the last two years (see Shift Towards London Office Refurbishment Continues As London Office Construction Increases and London Office Crane Survey 2021 – What It Means For London Office Refurbishment). The latest Deloitte London Crane Survey for summer 2022 comes to the same conclusion. In fact, London office refurbishments rose by 14% between October 2021 and March 2022 to 2.1 million square feet and accounted for 91% of all new starts! 36 schemes, exceeding the ten-year average of 30, broke ground during this period, made up of 31 refurbishments and 5 new builds.
Why Have London Office Refurbishments Increased?
According to Deloitte there is a higher level of refurbishments due to an increasing demand for more sustainable offices and the move towards the UK governments’ minimum Energy Performance Certificate (EPC) B rating requirement by 2030.
With the current low numbers of high specification, sustainable offices in central London refurbishing London offices presents investors with a worthwhile investment opportunity. A refurbishment, in comparison to a new build, is also the cheaper option for investors, especially given the current economic climate.
Cllr Geoff Barraclough Cabinet Member for Planning (Policy) and Economic Development at Westminster Council said “A lot of attention is on new buildings, but new builds are a tiny fraction of our city’s real estate. The most important thing is how we insulate and retrofit the offices we’ve already got.”
What Is An EPC?
EPCs were first introduced for all commercial, non-domestic buildings in 2008.
An EPC is a measure of the energy efficiency of a property on a scale of A to G. Where A is the most efficient and G is the least efficient. The energy performance of the building is shown as a carbon dioxide (CO2) based emission index (the amount of CO2 released per unit of energy value). The EPC will show the amount of CO2 emissions produced by a building in tonnes, buildings with A ratings have less CO2 emissions.
Energy ratings are based on the “makeup” of the building i.e., what it is made of, and the heating, ventilation and lighting used within the building. The ratings also include consideration of the age and condition of the building.
An EPC will advise the landlord on the measures that can be taken to reduce emissions and the reduction in emissions that could be achieved by using the building more effectively, through cost effective improvements and other more expensive improvements to enhance the building’s energy performance.
Minimum Energy Efficiency Standards (MEES) For Offices – Effect On London Office Refurbishments
In 2015 the UK government introduced Minimum Energy Efficiency Standards (MEES) in the Private Rented Sector Regulations, in order to bring older buildings up to acceptable energy efficiency levels. When the MEES were first introduced it was estimated that around 20% of commercial properties held the lowest energy performance certificate (EPC) ratings of F or G.
In 2019 a consultation was carried out to improve the non-domestic MEES. Legislation currently passing through parliament and is expected to set a long-term regulatory target of “EPC B by 2030, or the highest EPC band a cost-effective package of measures could reach.”
The implementation of EPC B by 2030 will be done on a phased manner. A compliance window will run from 2025 to 2027 to reach EPC rating C:
- By 1 April 2025 all non-domestic rented buildings must be able to show a valid EPC.
- By 1 April 2027 all non-domestic rented buildings must have improved to an EPC greater than or equal to a C rating or have registered a valid exemption.
Reaching the final minimum rating of B will run from 2028 to 2030:
- By 1 April 2028 all non-domestic rented buildings must be able to show a valid EPC.
- By 1 April 2030 all non-domestic rented buildings must have improved to an EPC greater than or equal to a B rating or have registered a valid exemption.
At each enforcement date building owners/landlords will need to show that their buildings have reached the highest EPC rating that can be delivered through a cost-effective package of measures. An economic viability test will be applied within the new legislation and there are some exemptions to achieving EPC rating B e.g., where a building is listed or where it is not technically feasible or not cost-effective, so not all London office buildings will be expected to conform to the new standards
Penalties
A penalty of 12.5% of the rateable value of the building or £750 where the formula cannot be applied will be levied against landlords who do not have an EPC. The range of penalties under this formula are set with a minimum of £500 and capped at a maximum of £5,000.
80% Of London Office Space Will Need Refurbishment
As of the writing of this article around 20% of central London office space meets the standards of an A and B on the EPC rating scale. 80% of London office buildings fall into C to G ratings. 20 million square feet of London’s office stock has a rating of F or G. Considerable upgrading of buildings will be required across existing London stock.
Siobhan Godley a Deloitte partner and real estate leader explains “Under the current regulations a minimum standard of EPC band E applies. It is unlawful to let an office which falls below this level. From April 2023 the same requirement will extend to existing lettings. More significant is the proposed bill currently going through parliament that if enacted as the current draft means that all offices will need to achieve EPC band B by 2030.”
“Potential MEES legislation is a headache for owners but a potential opportunity for investors. If supply levels are constrained due to a lack of new starts and occupier demand for quality space continues, then rents may continue making increased costs more bearable.”
How Can JBH Refurbishments Help?
It is clear that office refurbishment in London will play a major role in providing new office space to businesses in the coming years. With over 30 years’ experience in office design, office refurbishments and fit outs JBH Refurbishments can provide the relevant expertise for your project. You can contact us on 0333 207 0339 or via our contact page today for a free on-site consultation.
