Posted by: Lee Elliott
Jones Lang LaSalle EMEA Research
If you’re an occupier ahead of the game then you’re most likely in a LEED or BREEAM rated green building and already seeing improved cost-efficiency and productivity. You will take great comfort from the fact that you are in an office that is future perfect and has a long sustainable life ahead of it. But if you’re not – and you are in the majority – then the spectre of obsolescence could be starting to hang over your corporate portfolio. In the overall equation this is no great surprise as a huge chuck of commercial stock is just old. In the UK 22% of office stock was built pre-1960, while in Germany 59% dates from the period 1960 to 1990. But age is beginning to catch up with property, accelerated and exacerbated by fundamental changes in sustainability, technology and corporate strategies.
Critically, with stringent environmental legislation being introduced across Europe, minimum mandatory ‘energy performance’ levels are now being imposed to such a degree that in the near future it might be illegal to lease a sub-standard building. Although the onus is on landlords, occupiers are not immune as it will impact on sub-lettings, assignments and exit strategies, and trigger a mass of refurbishments that will significantly disrupt tenancies (and test landlord-tenant relationships).
The problem is likely to intensify. Replacement rates of the clearly aging stock are very low across many European markets and so a significant proportion is unlikely to meet occupiers’ future needs. Unless replacement rates improve, a new supply crunch could be on the horizon. The immediate and essential solution is refurbishment and, beyond environmental compliance, the opportunity to affect technology, energy and space upgrades is enticing. Conversely, less sustainable buildings with ‘irresistible’ rents might also appeal – but beware the ‘value trap’– any discount could soon be wiped out by rocketing energy costs in an inefficient building. Above all think about your total occupier costs and future business needs and don’t let obsolescence age your offices, business or indeed you!
[For the bigger picture on obsolescence, see what we are saying in our Offices 2020 programme which is looking at the future of offices across EMEA – better still, join in and share your thoughts with other occupiers].