Around 20 million sq ft of London’s office space, equating to almost 10 per cent of stock, has an EPC rating of F or G making it potentially unusable when new MEES regulations come into effect in 2023, requiring a minimum rating of E.
New analysis from Colliers shows that only approximately 20 per cent of central London offices can be classed as A and B on the EPC rating scale, with the majority (57 per cent) falling into the D to G categories.
Tom Wildash, co-head of the West End Leasing team at Colliers, comments: “London’s landlords are going to have to take a long hard look at their stock and need to take action now to bring their space up to a higher standard.
“One benefit of the pandemic is that it has brought the environmental and wellness credentials of offices to the fore amongst investors, owners and occupiers alike. It is imperative that those owners of offices with low EPC ratings spend the next 18 months on comprehensive refurbishment plans to avoid being left behind and unable to attract new tenants. With a lack of new build stock in the pipeline and a growing level of demand for best in class space, the refurbishment of London’s offices could do a lot to ease this supply/demand equation.”
Colliers notes that an influx in refurbished space could do much to ease the pressure on demand for new Grade A space for which supply is currently close to record lows. Looking ahead to 2023 and beyond, there is already 1.7 million sq ft of office space pre-let in the capital.
There is ample evidence of appetite for refurbished space with 2020 seeing over 600,000 sq ft of space pre-let in refurbished schemes, and prior to that between 2018-2020 44 per cent of pre-lets could be attributed to refurbished space.
James Pay, Head of Sustainability – Clients, at Colliers, adds: “Refurbishment is a vital tool in real estate’s race to net zero. With the retention of structures, careful selection of new materials and modern construction techniques the embodied carbon of a refurbishment project could represent a 50 per cent saving compared to a new build. Refurbishment can also open up circular economy opportunities, whether through enabling the selection of existing materials for reinstatement during fit out or enabling contractors to find alternative markets for the materials removed, before resorting to recycling.”
Colliers adds that while new Grade A+ schemes rightly demand the highest rental levels, sympathetic refurbishments have a crucial role to play in providing potential movers with a first class option, without the premium price tag. The firm notes that average unweighted rents recorded at refurbished schemes across London since January 2020, stand at £71.50 per sq ft. In contrast, new-build schemes recorded an average of £83.08 per sq ft.
In terms of pricing in the West End, refurbished schemes in the area still achieved an average of £85.57 per sq ft which was in excess of the wider London average for Grade A new-builds. Canary Wharf saw the least variance with new-build at £56.00 per sq ft versus refurbished space at £53.50 per sq ft.
Guy Grantham, London Research director at Colliers, says: “There is certainly evidence of appetite for refurbished space which is encouraging for landlords and developers looking to upgrade existing stock. There is also a mismatch between supply and demand as when looking at the overall delivery of development space by square footage in 2018-2020, refurbished schemes only accounted for 23 per cent of the market.
“Hopefully this number will increase as the EPC deadline looms. There is also plenty to be said for far better green credentials of refurbished space as opposed to demolition and complete rebuild from the ground up, the recycling of existing stock offers stronger green credentials in the short to medium term than potentially newly built BREEAM Outstanding projects.”