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Given the ever greater levels of corporate transparency, shareholder expectations and understanding of embodied carbon, it was no surprise to see that refurbishments and repositioning opportunities were leading the charge in the London development market.
Meanwhile, the number of new-build office developments that started construction in the capital were a third below the previous half-year period.
This called to mind Toby Courtauld’s recent remarks in your magazine on a predicted undersupply that could affect the London office market. It is our experience that the same headwinds that Toby correctly identified may also be starting to have an impact on repositioning and value-add opportunities – in particular cost inflation is often flagged as a primary concern by investors.
Could this mean that we are also set to see a reduction in the number of new refurbishments started in the next survey and potential reduced supply?
However, we would argue that what we are primarily seeing is that to meet the demand of investors and occupiers alike, you have to deliver the best in class. This is space that goes above and beyond to meet the highest ESG credentials and occupier expectations, as employers engage in a battle for talent.
In some instances, this will be a prime repositioning in a perennial location, and in others it will mean a new development, and there are still plenty of examples of financing being available for developers of the right assets – just look at Cain’s financing of Barings’ green South Bank office.
The reality is that we have now exited the low inflationary and zero-interest-rate environment that we had been in for some time, and this – combined with increasing ESG requirements – means there will be a more discerning approach from both occupiers and investors alike.
The flight to quality continues.
Jeremy Prosser, principal of central London office agency, Avison Young More
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