Value-add office investment in London is on the rise, with £2.8bn of activity in the capital last year focused on retrofit, refurbishment and repurposing opportunities, according to new data from Knight Frank.
The company’s research also found 10.6m sq ft, or 4% of the total office space in London, could have repurposing potential.
However, the window of opportunity for office retrofitting, refurbishing or repositioning projects continues to narrow as the EPC B minimum rating requirement deadline in 2030 looms large.
According to Knight Frank’s research, more than 33m sq ft of office leases with an EPC C-rating or lower – 48% of all expirations – will be up for renewal prior to that date.
Flora Harley, head of ESG research at Knight Frank, said: “There is currently a window of opportunity to gain an early-mover advantage. Aligning sustainability upgrades with periods of peak market activity may result in better returns and more favourable yields. But investors need to factor in potential lengthy project timelines and labour shortages when looking at these timelines.
“Moreover, with planning permissions dropping drastically, even with the increased push towards value-add investments and retrofitting or repurposing projects, it is likely that we will still be left with a significant gap in the supply of top quality, compliant commercial space. This could add significant value to the portfolios of investors who took the plunge earlier.”
Tim Robinson, head of commercial at Knight Frank, added: “The rapidly evolving landscape – with sustainability regulations and growing physical, financial, and functional risks – makes bespoke assessment and strategic asset management more important than ever to ensure value preservation and enhancement. It is vital that owners of older assets are proactive rather than reactive to get ahead of potential obsolescence risks and derive optimal asset performance.”
