Since January 2022, around 2.2m sq ft of secondary office stock in Central London has traded hands or is under offer, with a view to converting the space to alternative uses, according to data from CBRE.
The investment activity equates to around £2bn, with proposed alternative uses ranging from life sciences, residential, student accommodation and hotels.
The Ugly Brown Building in King’s Cross and 17 Columbus Courtyard, Docklands, are two examples of office buildings that have been sold with the intention of converting them into life science labs, with Nobel House and 89 Eccleston Square – both located in Victoria – sold or under offer for use as hotels and serviced apartments.
Ed Bradley, head of London office investment at CBRE, said: “We are seeing a very polarised market emerging in London. Occupational and investor demand remains extremely high for best-in-class offices, in prime locations, with a diverse amenity offering and strong ESG credentials, which is driving rental growth and very low vacancy rates.
“Secondary office space and locations, on the other hand, are lagging. The capex requirements to upgrade these assets can be prohibitively high so increasingly this space is being repurposed. We have seen several examples of where alternative use investors/developers are out-bidding traditional office investors by 10-20%.
“The diversity of buildings we have in London, coupled with the capital’s global appeal as the centre of excellence for innovation, education and tourism, means that it is well-positioned to support the repurposing of assets in this way whilst maintaining the vibrancy and global appeal it has always had. Offices will remain a dominant part of the real estate landscape and there will be greater demand for the very best, but investors are taking an opportunistic view on the value that can be achieved from alternative uses.”
