CBRE PREDICTS INCREASING REINVENTION OF SECONDHAND REGIONAL OFFICE SPACE AS SUPPLY TIGHTENS
CBRE, the world’s leading global real estate advisor, has today launched Refurbish to Reinvent, a report which identifies a looming shortage of quality office space in a number of UK regional office markets and predicts the rise in popularity of secondhand office space for both occupiers and landlords.
Whilst regional office demand has increased significantly over the past two years fuelled by economic growth and positive business sentiment, supply of good quality office space in city centres has struggled to keep up. In terms of total office supply, the markets identified as being most under most pressure based on average annual take-up versus availability are Bristol and Edinburgh with less than two years of supply in each city.
The report also identifies an imminent shortage of Grade A office supply across key markets such as the M25 North, Bristol, Aberdeen, Edinburgh and Leeds which all have less than two years of new supply if recent demand levels are sustained, returning to their cyclical lows.
During 2016 the number of new build office starts has been diminishing. This could result in a new shortage of Grade A office space once the current wave of development is complete.
Much of the new supply being delivered is targeted at larger businesses with average floorplate sizes of ranging from 15,000 sq ft to 26,000 sq ft. The ranks of smaller businesses are swelling in the UK and their appetite for higher quality, well located, aspirational office space, has also increased. Smaller businesses with requirements of less than 10,000 sq ft are often not being catered for in these space offerings. Neither can they afford to pay premium prices in most cases.
With the supply pinchpoint highlighted in this research, CBRE anticipates that refurbishment of existing stock to a modern category A level will become an increasingly favoured option, both for occupiers and landlords, especially given increased risk associated with large scale redevelopment following the referendum.
From an occupier perspective, choosing a refurbished office provides the benefits of a new high quality office at a lower cost and in a shorter time frame, in contrast to a new redevelopment. It may well be the most pragmatic, savvy, cost effective option, particularly if existing office space is centrally located, possibly benefitting from an attractive car parking ratio (something which is less common in new built stock). There are also key environmental benefits, including the option to attain higher sustainability standards.
From the landlord perspective, there is clear opportunity in repurposing existing office space, particularly in rising markets where prime space is limited or is slow to trickle through into availability. Elsewhere, in locations that have seen substantive amounts of office space lost to other uses, repurposing allows the creation of office space that stands out from other secondary space in the market, thereby maximising income.
Emma Jackson concludes: “Slow delivery of new development and an increase of pre-letting activity has concentrated the availability of Grade A space and we believe refurbishment of existing stock to a modern category A level will become an increasingly favoured option for occupiers and landlords alike.”