The latest winter 2022 London Office Crane Survey from Deloitte which covers the central London office markets of The City, West End, Docklands, King’s Cross, Midtown, Paddington and Southbank, and emerging submarkets: Vauxhall-Nine Elms-Battersea, Stratford, and White City from the period of April 2022 to September 2022 shows a continuing shift towards London office refurbishment.
“Flight To [London Office] Quality”
In a previous article earlier in the year we discussed how an increasing demand for more sustainable offices and the move towards the UK governments’ minimum Energy Performance Certificate (EPC) B rating requirement by 2030 were fuelling a higher level of refurbishments. At the time of writing only 20% of central London office space met the standards of an A and B EPC rating leaving 80% of London office buildings with C to G ratings and 20 million square feet of London’s office stock with an EPC rating of F or G needing updating to meet the new EPC targets.
This latest survey shows an increasing demand for Grade A accommodation in what Deloitte terms a “flight to quality”.
31 office development schemes with a total volume of 2.5 million square feet (sq. ft) were started between April and September 2022, representing a 6% rise in volume over the 2.3 million sq. ft started during the previous survey. Of the 31 schemes, 26 of them (nearly 85% of all projects) were categorised as refurbishments.
This push towards better office accommodation is being driven by the need of employers to encourage workers back to the office, hybrid working and the required changes this entails within the office environment, the need for more sustainable offices, the push towards improving EPC ratings and with the increased risks of labour and material shortages; higher interest rates and material price inflation currently associated with new build projects, office refurbishments are the more attractive proposal.
Age of Buildings A Factor In Driving London Office Refurbishment
The majority of London office refurbishment work was concentrated around the West End, the City, the Midtown and Southbank areas of London.
The West End had the highest number and volume of new projects with a total volume of 1.1 million sq. ft. The City had around 0.8 million sq. ft of new office projects across six schemes followed by the Midtown area which had about 0.3 million sq. ft across four schemes, while the Southbank saw about 0.1 million sq. ft across three schemes.
The prevalence of office refurbishment in these areas is due to the age of many of the buildings. Without refurbishment these buildings would become “stranded assets”. Stranded assets run the risk of being left behind if they’re not upgraded. Without refurbishment these buildings and office space can become too expensive to restore or retrofit, too expensive to operate as they use more energy and they are unable to meet the new energy efficiency standards which then impacts their value, rent potential and ROI, ultimately making the space unusable or “stranded”.
Environmental, Social, and Corporate Governance
As well as the age of buildings another factor in the increase in office refurbishment over new builds is the Environmental, Social, and Corporate Governance (ESG) concerns around demolition.
When a building is demolished the “emissions” associated with the original building’s material manufacture and construction emissions are lost and a new build then adds to the projects 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.
Reuse and Recycle
Since the last Deloitte Crane Survey there has been a 5% decline in total construction volume from 13.5 million sq. ft to 12.8 million sq. ft as of 30 September 2022. The decrease in projects under construction in favour of office refurbishment is likely to continue for the foreseeable future as developers and planners take the view that the best approach is ‘reuse and recycle‘ which is provided by refurbishment, making it a more attractive proposition than a new build, where as previously discussed, carbon emissions generated will be greater. Refurbishments will also be faster to deliver, therefore providing a quicker return on investment.
Philip Parnell, partner and real estate climate and sustainability lead said: “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.”
Acute Lack of Supply In EPC B Rated London Office Space Predicted
According to Deloitte, in order to fulfil office space demand developers would need to build or upgrade around 15 million sq. ft of office space per annum to meet the proposed EPC B rating by the 2030 deadline.
Based on the current trends seen across London office stock this objective will not be met and there is likely to be an acute lack of supply of quality office stock which will further fuel the need for more office refurbishment in the future.
Looking Forward
Based on the latest trends it’s clear that office refurbishment will continue to play an important role in providing much needed quality office space in London. When compared to new office builds London office refurbishment will bring older buildings in line with the minimum EPC B rating requirement, will reduce carbon emission output and produce faster results in providing much needed quality office space.
How Can JBH Refurbishments Help?
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. You can contact us on 0333 207 0339 or via our contact page today for a free on-site consultation.
