Refurbishment an opportunity to maximise commercial rent

Mass enforced working from home has caused many businesses to re-evaluate the role of the office and recognise the need for the best design to attract and retain talent in a modern, pleasant working environment.

That means there could be a boom in the refurbishment of older buildings.

As the pandemic is slowly receding, the hunt for premium offices will unlock refurbishment opportunities of Grade B and C stock in key UK cities this year, with associated rents setting new highs when complete, according to new research from leading property agent Savills.

Opportunities for investment

The research shows that refurbishment will be a key issue in helping to satisfy demand against a backdrop of limited new supply in some of the Big 6 cities of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester.

The firm’s research shows the development pipeline for new Grade A offices in the Big 6 markets as severely limited, with only 1.6m million sq ft of available new space due to complete between 2022 and 2025.

Savills says the 9.2 million sq ft of take-up between 2018 and 2021 exceeds the available brand new space in the development pipeline for the next four years by a huge 468 per cent.

However, the availability of Grade B and C supply, which at 5.65 million is comparatively larger, presents an opportunity for investment and refurbishment to improve this stock to a Grade A standard, says the firm.

What are office grades?

Office space grading was created to help estate agents, surveyors, investors, and everyone else in the property industry categorise building quality to justify property prices.

• A grade A office building is at the top of the tree and will be brand new or have undergone a complete redevelopment with a high-specification renovation.
• Class B is property that has been previously occupied and is not quite to the level of quality expected of grade A but is considered ‘average’ and perfectly usable.
• Class C usually refers to buildings that are 20- plus years old and are found in less desirable areas, therefore they offer the lowest yields and are often targeted by developers and utilised by smaller companies.

James Evans, national head of office agency at Savills, said: “Across the board, there is a flight to quality and centralisation, and while cities such as Manchester have a healthy pipeline of new offices to satisfy requirements, elsewhere in the country we expect to see high quality refurbishments fill the gap.

“Refurbishments are both quicker to deliver and often more economical, while also presenting occupiers with an interesting sustainability proposition given the re-use of existing buildings.”

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