Renovations are set to be a major theme for the UK regional office market in 2022
The post-pandemic hunt for ‘best-in-class’ offices will unlock B/C grade stock renovation opportunities in major UK cities in 2022, with associated rents reaching new highs when completed, according to new research from Savills.
To meet demand, and amid limited new supply in some of the Big 6 (Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester), Savills believes refurbishment will be a key feature of the UK regional office market in the coming year.
The firm’s research defines the development pipeline for new Class A offices in the Big 6 markets as very limited, with only 1.6m² of new space available to be completed between 2022 and 2025.
Compare that to Category A support over the past four years, and Savills says the 9.2 million square feet of support between 2018 and 2021 exceeds the brand new space available in the development pipeline for next four years by a whopping 468 per cent.
The availability of B/C grade supply, which at 5.65 million is comparatively larger, presents an opportunity for investment and renovation to upgrade this stock to A grade level, the company said.
James Evans, National Office Agency Manager at Savillssaid: “The consistent trend across all markets is a steady return in office demand with demand levels returning to pre-pandemic levels.
“Across the board there is a flight to quality and centralisation, and while cities like Manchester have a healthy pipeline of new offices to meet requirements, elsewhere in the country we expect to see high-quality renovations fill the void.
“Renovations are both faster to deliver and often more economical, while presenting occupants with an attractive sustainability proposition given the re-use of existing buildings.
“When you also consider some of the viability issues associated with spiraling construction costs, renovations will play an increasingly vital role. demand could lead to significant rent growth on renovated stock. Occupants are willing to pay higher rents for better space.”
Comparing current Grade A newbuild rents to best-in-class refurbished space, Savills found that Glasgow and Birmingham had the largest rental differentials, at around 15%, compared to around 10% in other Big Markets. 6, suggesting these two markets are likely to experience the largest increases in renovation rents.
The trend favoring the ‘best in class’ predates the Covid-19 pandemic, says Savills, but forced home working en masse has caused many companies to re-evaluate the role of the office and recognize the need for better design. to preserve its objective and attract talent. This, combined with individual occupant ESG priorities, has increased competition for space.