Obsolescence is nothing new but the environment in which we operate means that it is now a very real threat. In particular the aging nature of the UK’s office stock due to the high percentage built before the 1960’s linked with increasing legislation and the changing requirements for corporates will mean that landlords now need to think seriously about refurbishing and upgrading their stock if they don’t want to see the value of their buildings depreciate.
Offices appear to be more affected by obsolescence than any other property in the commercial sector. Shops are often refitted for new tenants and warehouses are very simple in their design and obsolescence isn’t really a factor, but for offices refurbishment can be costly.
There has always been obsolescence but it appears to be more relevant than it has in the past. Factors that need to be taken into account are Energy Ratings, Corporate Responsibility and Technology.
In 2018 the law will make it illegal to lease any property below a minimum Energy Rating currently expected to be E. The concern is that tenants won’t be able to assign or sub-let the building if it is below standard and the worry is that the rating could also move above E within that five year period. Five years isn’t a long period to plan the upgrading.
Corporate responsibility to “go green” is an increasing requirement as corporate occupiers look to provide sustainable working environments to promote their brand, retain their staff and meet other social responsibility demands. Many of the larger companies want to occupy space that has good sustainable ratings as this will potentially reduce their running costs.
Finally and linked closely with the Corporate’s requirements, occupiers want more flexible space to provide fluid hot-desking facilities to allow the creation of virtual teams.
Although refurbishment can be costly Landlords can benefit from not only retaining existing Tenants but in instances creating additional lettable space, refurbishment can be quite a cost effective way of investing money by a Landlord. It could add another twenty years to the life of the building.
It is doubtful that these factors will disappear and Landlords should take heed.