The Deloitte Crane review is considered to be the “definitive” review of office construction in central London and a useful measure of developer confidence and potential future office supply. The survey measures “the volume [and impact] of office development (new build or significant office refurbishments of 10,000 sq. ft. or more) taking place across Central London (The City, West End, Docklands, King’s Cross, Midtown, Paddington and Southbank) and London’s submarkets (Vauxhall-Nine Elms-Battersea, Stratford, and White City” and looks to the next four years future development pipeline.
Twice a year Deloitte carry out the London Office Crane survey which analyses London office construction (and London office refurbishment) data over a six-month period, from April to September and October to March. Deloitte have been publishing Crane Surveys since 1996. The first West End Crane Survey was produced by Driver Jonas (later acquired by Deloitte). The first Central London Crane survey was published in in the Summer 2002, whilst the emerging submarkets (VNEB, Stratford and White City) were first studied in the Summer 2016 survey.
This year’s survey which covers the period from October 2022 to March 2023 shows the highest number of London office refurbishment schemes starting – new builds and refurbishments – since records first began in 2005. With 37 new schemes covering 3.2 million sq. ft., the figures are up by almost 80% compared to the Winter survey.
After several years of disruption, caused by the pandemic, delays in project completion mean that there is now projected to be over 10 million sq. ft. of office space being delivered during 2023.
Margaret Doyle, chief insights officer for financial services and real estate at Deloitte, said “Following pandemic-induced home working mandates, many businesses are now encouraging office attendance more proactively and are considering how to attract employees back to the office.”
Need To Meet Minimum Energy Efficiency Standard (MEES) Regulations
The push to refurbish is being driven by a need to meet the standards set by the Minimum Energy Efficiency Standards (MEES). MEES was first introduced by the government in 2015, in the non-domestic private rented sector, in order to bring older buildings up to acceptable energy efficiency levels (an Energy Performance Certificate (EPC) B rating). At the time of introduction only 20% of central London office space met the required standards of an A and B on the EPC rating scale. 80% of London office buildings fell into C to G ratings with 20 million square feet of London’s office stock holding the lowest energy performance certificate (EPC) ratings of F or G.
With the majority of London office stock falling well below the required standards upgrading and refurbishing buildings and offices is clearly being reflected in the number of refurbishments projects currently taking place across London.
Sophie Allan, director in real assets advisory at Deloitte, said “Developers seem to be cautiously optimistic about the future of London’s development pipeline. Positive signs include a huge increase in the volume of new starts compared to the previous survey, and the highest volume of refurbishment starts on record, as developers race to avoid obsolescence. New infrastructure and expanding transport links have attracted people to previously overlooked areas like mid-town and the eastern fringes of the City. This is undoubtedly a vote of confidence in London after the intense disruption of the pandemic, disturbance to supply chains and rising inflation experienced over the past year.”
MEES Timelines
The long-term regulatory target is to reach EPC B by 2030, or the highest EPC band a cost-effective package of measures can reach.
Since April 2023 the minimum standard of EPC band E now applies. It’s unlawful for a landlord to let an office which falls below this level (unless it has registered a valid exemption).
The next target is to reach EPC B by 2030. The compliance window will run from 2025 to 2027:
- 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.
As each set of dates are reached 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. There are also some exemptions to achieving the EPC rating B e.g., where a building is listed or where it is not technically feasible or cost-effective.
Quality Office Space A Requirement
With MEES pushing standards higher building owners have little choice but to fit out their buildings and workspaces to much higher standards.
According to Deloitte as demand is shifting to higher quality office space this is forcing building owners to improve their existing office stock if they want to be able to compete, stand out from the crowd and meet the needs of occupiers who are demanding office space which is more discerning, flexible, sustainable and promotes health and well-being in order to attract and retain staff.
Margaret Doyle, chief insights officer for financial services and real estate at Deloitte, explains “Tenants’ shift toward quality over quantity has led to desire for attractive, sustainable, well-kitted out space, close to transport hubs and amenities. We expect that the need to bring offices up to scratch – especially in terms of energy efficiency – will drive London’s development for the rest of the decade.”
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.”
The timelines to meet MEES and the drive towards better quality office space will mean that London office refurbishment will continue to be a major part of London office development for some time to come.
JBH Refurbishments, Experts In Office Design and Refurbishment
JBH Refurbishments have over 30+ years experience in office refurbishments and fit outs. We understand what’s required to carry out an office refurbishment to the highest standards and can provide the right expertise for your Kent or London office refurbishment. 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. You can contact us on 0333 207 0339 or via our contact page today for a free on-site consultation.
