By now, with summer behind us and three quarters of lettings data to mull over, the momentum for heavy – rather than light – refurbishment will be considerable. Today the differential between Grade A and Grade B London offices is fairly stable. Through the ups and downs of the last 24 months, the gap has not widened dramatically.
Today DeVono figures show the bandwidth of average rents range from £66 per sq ft for Grade A down to £50 per sq ft for Grade B – that’s a difference of £16, or to put that another way, a Grade B discount of 24%. Back in spring 2020 the range was £71/£54 – a difference of £17, also a 24% discount.
But if the market develops as many expect, by September 2022 rental growth on Grade B stock will be lagging behind those in better quality stock, as nine months of deal-making takes its toll.
At this point landlords’ appraisal mathematics begins to shift decisively.
Charlie Ingram-Evans, Head of Building Consultancy and Project Management at surveyors, Knight Frank, specialises in advising landlords on refurbishing office space and also works on the tenant fit-out side.
‘I think by this stage we’ll see few light refurbishments, and many heavy. Of course there are limits – if a building could be completely redeveloped in 5-8 years then maybe something low budget is the right option, pending a bigger decision. But if your building still has 10-20 years life left in it, now has to be the right time to invest,’ Charlie tells us.
‘There are push and pull factors here, all of which will affect landlord thinking, as will their appetite for spending. But the better informed will realise that a lick of paint and a few nicer loos will not cut the mustard any more. We will see a flight to quality, which means more amenity, better light, better energy efficiency – all of which adds up to heavy refurbishment.’
Will a supply chain collapse or a lockdown take the tinsel off Christmas 2022? It is too early to tell, but what we can say is that, by the time winter chills arrive in 2022, the importance of sustainability and green credentials to both landlords and tenants should be well established.