The Deloitte Summer 2024 Edition of the London Office Crane Survey which covers the period between October 2023 to March 2024 has been published. The Crane survey measures the volume of office development and office refurbishments taking place across London covering the seven central office markets: The City, West End, Docklands, King’s Cross, Midtown, Paddington and Southbank.
This latest survey reports that the volume of new construction has fallen by 18% to 4.2 million sq. ft. starting across 42 schemes. This remains above the 10-year average of 3.3 million sq. ft. Deloitte go onto say that for the first time in the history of the London Office Crane Survey, new start volumes have exceeded 4 million sq. ft. in three consecutive editions of the survey. However, the report emphasises that “developers are turning to refurbishments in the face of economic uncertainty”, and this is the eighth consecutive survey where office refurbishment outstrips new builds in new construction activity. This is also the third consecutive survey where refurbishment volumes exceed 2.5 million sq. ft.
Sophie Allan, director in real assets advisory at Deloitte, said: “While there has been a drop in new starts from our last Crane survey, development activity remains well above the 10-year average. The desire for premium office space as well as the implementation of energy standards has powered projects centred on modernising outdated premises. This inclination to opt for refurbishment is a trend we foresee enduring over the next decade.”
Record Breaking London Office Refurbishments Level
The volume of office refurbishments, over 2.5 million sq. ft. for the three most recent Crane surveys are substantially higher than before the volumes seen before Summer 2020, reaching record breaking levels.
This upward trend can be attributed to the number of benefits of refurbishing existing buildings over new builds to provide best in class office space, such as lower costs and quicker delivery schedules. The introduction of the UK governments’ Minimum Energy Efficiency Standards (MEES) and Environmental, Social, and Corporate Governance (ESG) is also a main driver of office refurbishments.
MEES
The need to meet MEES and bring older buildings up to the acceptable energy efficiency levels minimum of an Energy Performance Certificate (EPC) B rating requirement by 2030 is helping to drive office refurbishments.
In 2022 only around 20% of central London office space met the proposed 2030 minimum B standard on the Energy Performance Certificate (EPC) rating scale with 80% in the C to G ratings and of those 20 million sq. ft. of London’s office stock had a rating of F or G. As late as 2023 Savills looked at the latest UK EPC register data and found that 745m sq. ft or 77% of the UK’s office stock of office stock was still below an EPC B rating. Given that any building that does not meet the minimum required EPC rating will fall into obsolescence there is a push to refurbish office spaces so that they can continue to be used.
Sophie Allan explains: “The tightening of Minimum Energy Efficiency Standards signalled by the UK government, and rising occupier demand for premium office space, continues to drive persistently high levels of construction activity in Central London with new construction starts exceeding 4 million sq. ft. for the third survey in a row.”
Paul Jayson, The UK Head of Real Estate Sector for DLA Piper was quoted as saying: “Desirable amenities and environmentally friendly, well-located buildings are now in high demand. Owners of less popular commercial real estate may consider upgrading their properties to a higher technological specification and with flexible workspace designs, as well as ensuring compliance with the new minimum energy efficiency standards (MEES) and other sustainability benchmarks.”
ESG
Environmental, Social, and Corporate Governance is helping to drive businesses towards net zero emissions and a reduced carbon footprint through a reduction in embodied carbon, the CO₂ emissions that are associated with the materials and the construction processes throughout the lifecycle of a building, which make office refurbishments more desirable than new builds.
Where a building has to be demolished to make way for a new build demolished the emissions associated with the original building’s material manufacture and construction emissions are lost and the new build then adds to the project’s emissions during its construction.
Even energy efficient buildings can take decades to recoup the energy emissions created during their construction. Up to 35% of an office building’s carbon is emitted before the building is operational. It’s therefore more energy efficient to use existing buildings and refurbish rather than demolish and build new.
Philip Parnell, partner and real estate climate and sustainability lead said: “Through a combination of tightening planning policy and ever-increasing focus on moving towards achieving net zero, it is fascinating to see the continued trend of increasing refurbishment activity. This underlines our previous assertion that investors should be conscious of an increase in the risk of stranded assets where assets do not meet occupiers’ ESG expectations, with the inevitable risk of value erosion.”
Philip Parnell further explains: “With tenants seeking better quality accommodation offering demonstrable ESG credentials, developers are focusing increasingly on the refurbishment of existing stock as a means of addressing ‘stranding risk’. Net zero targets and legislation to support the commercial case for net zero development remain unclear and it remains to be seen whether the current macroeconomic headwinds will stifle progress. However, with both occupational and investor stakeholder pressure mounting we expect the shift towards greater alignment from developers with the ESG agenda to continue.”
JBH Refurbishments, Experts In Kent and London Office Design and Refurbishments
JBH Refurbishments are a cat a and cat b fit out contractor and have over 30+ years’ experience in office design and office refurbishment and fit outs. We can advise on all aspects of your Kent or London office refurbishment. We understand what’s required to design a sustainable office space and carry out a refurbishment to the highest standards. From your brief, to putting together a project plan, to developing your office design and layout to delivering your office fit out JBH Refurbishments will provide piece of mind. To find out how we can help us via our contact form or by calling us on 0333 207 0339.
