Increased demand and New Minimum Energy Efficiency Standards (MEES) are
prompting a surge in London office refurbishment work according to the summer
2022 edition of the London Office Crane Survey from Deloitte.
Around 80% of London office space will need to be upgraded to meet MEES
standards according to Deloitte. This equates to work on around 15 million sq
ft of office space a year and 31 of the 36 schemes to start in the past six
months were refurbishments.
Siobhan Godley, a partner at Deloitte and real estate leader, explains:
“Leasing activity by occupiers improved through Q4 2021 and Q1 2022, and whilst
not quite back to pre-pandemic levels, it is much higher than in previous
quarters. Investor interest in the UK, and London in particular, remains high.
“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.”
Glenigan’s research has identified a number of major London office
refurbishment projects about to start or in the pipeline.
These range from a £12.8 million fit-out of 22 Bishopsgate by 8Build
(Project ID: 22157975) to the £18 million revamp of 60 London Wall by
Structuretone (Project ID: 22206662). Work on both schemes is expected to start
in August.
Deloitte expects 2.7 million sq ft of office projects will start between
April and September. This rise is driven not just by major projects. Many
smaller offices in London are also being re-fitted.
Glenigan’s market analysis has identified swathes of these projects. These
range from a £1.9 million package of alterations to 185 Park Street in
Southwark to a £3.3 million fit-out of the first floor at 25 Cannon Street,
where Morgan Lovell is due to start in July (Project ID: 22198289).
The volume of new-build office construction starts dropped to just 200,000
sq ft of space according to Deloitte, which has hit work levels in the capital,
but this is likely to change,
Overall construction starts in London fell by 13% in the three months to May
2022 against the previous quarter, but the underlying value of projects
securing planning permission rose by 7% according to Glenigan’s market
analysis.
This rise in the London pipeline was buoyed by both refurbishment and
new-build office projects. The decision by London Mayor Sadiq’s Khan to
overturn Southwark Council’s rejection of the Vinegar Yard scheme at London
Bridge was another boost for the sector (Project ID: 19138276). Work on the £77
million 20-storey office block could now start at the end of this year
Glenigan’s market analysis has identified other major new-build office
schemes in the pipeline in London. These include the £70 million Network Building
on Tottenham Court Road by Derwent London (Project ID: 20495354) to the £100
million redevelopment of 7 Millbank by Baola Properties (Project ID: 21120759).
Shortlists of contractors are working on bids for both schemes now.
With Deloitte finding that two thirds of developers plan to increase their
pipeline of London office projects, prospects for the sector look set to
continue to improve.
