Is there a future for office refurbishment?

This article first appeared in Mix Interiors Issue 221

Words: David Thame

Refurbishment is the office development market’s break- glass-in-emergency option. Or so the old wisdom says.

Refurbishment is definitely cheaper and always quicker. In a recession that means two very big ticks. It also means lower rents than new-build for cost-conscious tenants. Everyone wins.

The appeal, then, is obvious. If the economy is tanking and the future looks uncertain, there’s no sense in investing heavily in the monumental risk of new-build floorspace. Besides, occupiers are likely to be cost- conscious and would probably prefer a budget option.

No surprises that in the last three or four recessions or mini-recessions, refurbishment became the big work- stream for property developers, landlords, brokers and designers – and everyone else who depends on a steady pipeline of new workspace. But this time it could be a little different. The reasons are many and complex, and the consequences equally fluid.

So first, the reasons, then what it might mean for your working life in the next few years.

Barry Jessup is managing director at Socius Development, a mixed-use developer with a string of schemes underway including 185,000 sq ft of new workspace in Cambridge, 180,000 sq ft in Bristol, and much else besides in the capital and the regions. Jessup’s view is that (some) of the old wisdom no longer works.

“We’ve got very different market drivers than earlier downturns, meaning we’ve got a lot of focus on sustainability and on the post-COVID reaction to the workplace, and that changes things,” he says.

“The fact is that between the two it means office occupiers are obliged to find new offices to meet their human resources and sustainability targets in a market with historically low levels of vacant office space. And at the same time a lot of older potentially refurbish able floorspace is either too expensive to get up to those standards, or simply impossible to get up to those standards.”

In other words, making refurbishment work in the world of BREEAM Excellent ratings and Well certification is more demanding, expensive and complicated. Office refurbishment is no longer the relatively easy option it was in 1996, 2001 or 2010. “In the past, you could maybe give it a lick of paint and off you go, but not now,” Jessup jokes.

If landlords and developers find refurbishment a shade less appealing, does that mean that cost-conscious occupiers will share their view? Won’t there still be plenty of businesses who prefer (relatively) cheap and (relatively) cheerful to the expensive commitment of new-build floorspace?

Well yes, some will. But any business with an eye to post-recession survival probably won’t, Jessup thinks.

In the meantime, developers, investors and landlords have priorities of their own if they are to survive a downturn. Top of the list is not frittering time or money on projects that won’t deliver the right rate of return.

“If the economy is smaller tomorrow than it was today, we have to be very selective. That doesn’t mean turning the tap off and not developing, because there is real demand for good workspace and that demand is not going away. But it does mean being sensitive on price, aware of investors’ views of debt and gilts, and keeping our eyes open,” says Jessup.

The COVID pandemic stress-tested the office market, he tells us, and it survived – more or less. We know plenty of employers and employees really do value going to the office. “Unless there is a proper economic collapse – a depression – the labour market is going to remain tight, which means employers have to provide good workspace,” Jessup continues.

So there ought to be no reason for panic. But some locations and styles of office will work, others less so, and on the whole refurbished space is harder to make appealing.

To be fair, it’s not all one way. There are some modest impulses towards refurbishment. Developers and investors have sustainability targets of their own, and repurposing the embodied carbon in an existing building scores higher points than building new. Whilst many acknowledge the moral impulse to refurbish, plenty caveat this with the observation that not all older buildings are aesthetically or structurally viable. If there is a push for refurbishment – and there might be – it could come from occupiers as much as landlords, and it will come in the form of upgraded fitouts rather than wholesale work on the fabric and common spaces.

Alex Herrmann is Head of Building Consultancy at MAPP, the business that manages £15bn of commercial property on behalf of many of the UK’s largest landlords and investors.

“We have already seen tenants undertaking refurbishments of existing space rather than waiting to lease end which has been the norm,” he says. “Landlords see the need to provide space to attract new occupiers and are actively enhancing the specification of floor plates and common areas, such as more collaboration areas, events spaces and wellness features in order to not be left behind by the market.”

The conclusion is that refurbishment is not a dead- letter – there are times, places and people for whom it will be the right option. But as a template to be applied everywhere, as was the case in previous downturns, office refurbishment may have had its day.