It is no secret that UK office supply is under some pressure: the Government’s policy of granting Permitted Development Rights for change of use from office to residential has, in particular, led to a significant reduction in the availability of more economic office stock in all regions and cities. Office availability currently stands at the lowest level on record with only 11.1 million sq ft of space available across the country.

Although more than 3 million sq ft of new stock is still set to be delivered over the next three years, plans for further long-term development are likely to slow until a clearer picture emerges of the UK’s long-term strategic direction following the decision to exit the EU.

In the face of lower development levels in the medium to long term we’re seeing refurbishment opportunities becoming more and more attractive. Largely due to the speed that they can be delivered, these properties have the ability to ‘plug the gap’ while the market waits for new development to complete. In addition, they can be the value option for occupiers who perhaps can’t afford Grade A rents in some locations or are looking to cut costs.

Refurbished buildings can also help satisfy the trend for unconventional office space. While originally the ‘defurb’ was typically the home of the hipster or start-up, more traditional occupiers, such as lawyers, accountancy and engineering firms and even government bodies, are now looking for a more creative fit-out.

The resulting popularity of these buildings is visible in the 2.5 million sq ft of refurbished offices across the UK (excluding the M25 market), which are set to complete by the end of 2018. Importantly for landlords, the rents these schemes will achieve will be only 10-15 per cent lower than those for new space in some locations. Landlords remain wary of alienating cost-conscious occupiers, however, so are unlikely to set the same rents for refurbished offices as they would for newly built space. The rental gap between new and refurbished is therefore likely to remain, and will probably widen once more if and when development activity picks up in the longer term.

Further information

Read more: Regional Office Market Report