NEW research has revealed the post-pandemic search for ‘best in class’ offices will unlock refurbishment opportunities of Grade B/C stock in major UK cities this year including Glasgow and Edinburgh.
Savills added that associated rents will set ‘new highs’ when complete.
In order to satisfy demand, and against a backdrop of limited new supply, Savills believes refurbishment will be a key focus of the regional office market.
The firm’s research sets out the development pipeline for brand new Grade A offices in the ‘Big 6’ markets of Birmingham, Bristol, Edinburgh, Glasgow, Leeds and Manchester as being ‘severely limited’. As a result, the availability of Grade B/C supply presents an opportunity for investment and refurbishment to improve this to Grade A standard.
James Evans, national head of office agency at Savills, said, “The consistent trend across all markets is a steady return of office demand with enquiry levels returning to pre-pandemic levels. Across the board, there is a flight to quality and centralisation, and while cities such as Manchester have a healthy pipeline of new offices to satisfy requirements, elsewhere in the country we expect to see high quality refurbishments fill the gap.
“Refurbishments are both quicker to deliver and often more economical, while also presenting occupiers with an interesting sustainability proposition given the re-use of existing buildings. When one also considers some of the viability issues associated with spiralling build costs, refurbishments will play an increasingly vital role.
“Furthermore, as we have seen in the south east already, the weight of demand could lead to significant rental growth on refurbished stock. Occupiers are prepared to pay higher rents for better space.”
By comparing the current new build Grade A rents against best in class refurbished space, Savills found that Glasgow and Birmingham has the largest rental gaps at circa 15%, compared to circa 10% in the other Big 6 markets, suggesting these two markets are likely to see the biggest jump in refurbishment rents.