Race against time to ramp up retrofitting
COMMENT The widely followed Crane Survey from Deloitte was released this week and, a bit like unwrapping that random present at Christmas from a distant uncle, we opened it with some trepidation. But good news awaited: 5.1m sq ft of new starts, the highest since the survey began in 2005. And, more crucially, refurbishments dominated at 65% of the total, the greatest share on record for the second survey in a row.
In total, there were 124 schemes under construction across the central London market, representing 15.7m sq ft. With almost 6m sq ft of space already delivered, Deloitte is calling 2023 the “year of the catch-up”.
This is seemingly at odds with a mood among developers that can best be described as “bah humbug”, backed by headline-grabbing announcements of further delays on many projects, and some failing altogether. But we take the data at face value.
COMMENT The widely followed Crane Survey from Deloitte was released this week and, a bit like unwrapping that random present at Christmas from a distant uncle, we opened it with some trepidation. But good news awaited: 5.1m sq ft of new starts, the highest since the survey began in 2005. And, more crucially, refurbishments dominated at 65% of the total, the greatest share on record for the second survey in a row.
In total, there were 124 schemes under construction across the central London market, representing 15.7m sq ft. With almost 6m sq ft of space already delivered, Deloitte is calling 2023 the “year of the catch-up”.
This is seemingly at odds with a mood among developers that can best be described as “bah humbug”, backed by headline-grabbing announcements of further delays on many projects, and some failing altogether. But we take the data at face value.
Rapid refocus
The 3.3m sq ft of London refurbishment new starts – 34 of the 45 new schemes registered – is laudable and supports the wider trend. We are encouraged by this rapid refocus on retrofits.
Economically, net-zero retrofit is the key to unlocking huge financial value in soon-to-be-obsolete offices across the UK. Of all the offices in our major cities of London, Manchester, Birmingham, Glasgow, Liverpool, Leeds, Edinburgh and Cardiff, a shocking 91% are rated EPC C or worse, according to our analysis of EPC data. They are in urgent need of refurbishment to meet tightening regulations and to hit the nation’s sustainability goals.
However, in a half-full glass of eggnog view of the world, the pace of retrofitting still barely registers. New retrofit starts actually represent only about 1% of the total 300m sq ft of office floor space in London. At this pace, it will take more than 100 years to fix the problem. That is time we do not have. We have until 2050 – 26 years – at best. Basic maths: we really need to be retrofitting more like 7% of London’s stock each year.
Zooming in on the issue further, we have done some work on the EPC database and estimate that there are approximately 6,500 significant (more than 20,000 sq ft) office buildings in London with a poor EPC rating. When you start thinking about all the unnecessary carbon that these inefficient buildings are emitting, the problem gets really scary. Totting up the numbers, based on some rough assumptions, we are needlessly emitting some 1.1m tonnes of carbon every year.
Implementing the improvements needed to bring 6,500 buildings up to net zero standard will come at a cost – we estimate around £30bn to £40bn in total. Stick with me and you will see how quickly that money is made back – we can do well by doing right, as we like to say here.
Green credentials
Demand for sustainable offices has never been higher. Firms are waking up to the fact that to attract top talent, and thereby gain a competitive advantage, they need to demonstrate their green credentials. A recent KPMG survey that noted a rise in “climate quitting” also found that one in three Gen Zers would reject a job offer if the company did not align with their values. This pivot is pushing up rents, creating a clear green premium of up to 20% in survey after survey.
That 20% uplift equates to around £40bn in value improvement across those 6,500 assets, so net-zero retrofits have a quick payback. Then, think about the savings in annual electricity costs – a nice little stocking stuffer at around £1bn per year according to our maths. Going green puts you in the black in no time.
Further savings will come indirectly through cutting carbon. Despite a short-term slump in the UK’s carbon market – a symptom of Rishi Sunak’s green credibility crisis – carbon pricing remains one of the most important finance-based incentives that government can implement to hasten the low-carbon transformation. Local leaders are pushing this agenda. This year Westminster City Council proposed increasing its carbon offset payment to £880 per tonne, more than nine times the price recommended by the Greater London Authority.
While we applaud the new data and pace of retrofitting, we need to do more, faster. Whether by stick or by carrot, it is time to rise to the challenge and pick up the pace of refurbishment to secure a net-zero built environment.
Basil Demeroutis is managing partner at FORE Partnership
