Demand for buildings with better green credentials is one of the driving forces of a refurbishment boom in the City.
New construction activity in the Square Mile over the six months to September indicated a “flight to quality”, with demand for Grade A accommodation on the rise, according to a survey from consulting and audit firm Deloitte.
There was a 6% rise in the volume of new schemes compared to the previous survey at 31, covering a total volume of 2.5 million square feet.
However, 26 of the new starts between April and September 2022 were refurbishments, which accounted for 1.7 million square feet.
To attract workers back to the office, companies are demanding higher quality office space, with demonstrably better green credentials. But the spiralling costs associated with new building projects and environmental concerns around demolition have made refurbishments a more attractive option.
This has led to a concentration of activity in the City, West End and Midtown areas of London where there is a “relatively large stock of existing buildings ripe for refurbishment”, the report said.
“With tenants seeking better quality accommodation offering demonstrable ESG credentials, developers are focusing increasingly on the refurbishment of existing stock as a means of addressing ‘stranding risk’,” Deloitte partner Philip Parnell, partner and real estate climate and sustainability lead, said.
According to the firm’s survey, more than three quarters of developers claim their new developments will achieve net zero by 2034.
However, just over half (54%) also said their developments would only reach net zero after 2030, in comparison to 70% who said they were striving for 2030 or earlier in the same period last year.
“Net zero targets and legislation to support the commercial case for net zero development remain unclear and it remains to be seen whether the current macroeconomic headwinds will stifle progress,” Parnell said.
“However, with both occupational and investor stakeholder pressure mounting we expect the shift towards greater alignment from developers with the ESG agenda to continue.”
Elsewhere, the report noted demand for financial services firms for City real estate has started to cool. Pre-completion letting volumes taken by investment banks and asset managers has shrunk by almost half in under five years to just 17%, Deloitte flagged.
The legal profession has now taken the largest proportion of under-construction pre-lets at 33% of total volumes.
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