The prospect of a revival in office building activity driven by an upturn in extension and refurbishment work emerged as one of the most promising themes in the latest Glenigan Construction Industry Forecast 2023-25.
As companies seek to rebuild and reconfigure their business space to accommodate hybrid working, the offices sector can look forward to two years of growth with particularly strong opportunities in London.
After a dip in activity this year, Glenigan is forecasting that the value of underlying new office project starts (under £100 million) will rise by 19% next year to £6.14 billion and by a further 11% in 2025.
With some 40% of staff in the capital now involved in hybrid working and central London workers spending an average of just 2.3 days per week in the office, the growth of refurbishment work to adapt office space in the capital is a major source of new opportunities.
Indeed, extension and refurbishment work has grown significantly in recent years and accounted for 63% of underlying new office starts in London last year, compared to 58% nationally.
The scale of the office building work pipeline in London is reflected in Glenigan data. Based on pro-rata figures showing a strong start in the opening months of this year, the value of underlying office project approvals in the capital is set to rise to around £1,800 million in 2023, up from around £1,550 million last year.
The message from major quoted property developers in the capital reflects the positive trends in the sector. Toby Courtland, chief executive of Great Portland Estates (GPE), recently pointed to an economic recovery underway in London where it has a £1.1 billion near-term development pipeline.
This includes a major 139,900 sq ft refurbishment of an office building at Minerva House in Southwark (pictured), where work is due to start later this year (Project ID: 21573497) and a 67,700 sq ft redevelopment on Piccadilly, where it has secured planning permission (Project ID: 20399112).
Meanwhile, GPE has a target to increase its Flex, serviced office space offering – which is suited to hybrid working – from a current level of 250,000 sq ft across 17 buildings in London to more than 600,000 sq ft.
Demand for Grade A space
Growing demand for premium, Grade A, office space which is energy-efficient and offers attractive surroundings which appeal to hybrid workers is also generating new construction opportunities.
To meet the demand for prime, sustainable new headquarters space, GPE is preparing four near-term schemes which will provide 917,800 sq ft of space and include its major project at 2 Aldermanbury Square (Project ID: 21166709).
Another quoted property group, Landsec, also sees significant development opportunities in the capital. The group has a 1.1 million sq ft consented office pipeline in the West End and Southwark which it says is deliverable into ‘a window of a significant shortage of sustainable Grade A supply’. Landsec may also raise finance for opportunities which could include acquiring and upgrading ‘well-located London offices in need of repositioning.’
Landsec has recently appointed Overbury as the main contractor on a £29.99 million office refurbishment at 5 New Street Square in the City of London. Work is due to start this coming September and includes the decarbonisation of the building by replacing gas boilers with air-source heat pumps (Project ID: 23136624).
Beyond the capital, the new office construction pipeline is looking healthier in Scotland, the West Midlands, and the East Midlands.
North of the border, the value of underlying new office approvals is set to almost double to over £400 million this year, based on pro-rata figures. One major project in Glasgow where plans have recently been unveiled involves a £60 million refurbishment of the Met Tower in North Hanover Street to create a new tech and digital hub. Work on the scheme of over 34,000 sq m could start early next year (Project ID: 22173291).
