
The latest report on the European office market from Cushman & Wakefield highlights some pressing challenges for the office sector in the next five years. The UK office market swerved the worst of downturns faced by other international office markets such as the USA, and some areas such as London are seeing healthy growth and take-up.
However, success is largely being driven by what property consultants would classify as ‘A’ grade offices – those with modern facilities, strong sustainable credentials and that are sited in attractive central locations.
The problems lie with the tranche of offices below this level. Cushman & Wakefield estimate that even in London, where demand for office space is robust, 76% of office stock will be stranded assets unless ‘proactive’ measures are taken by owners.
These properties are less likely to have been upgraded to meet upcoming energy use targets (Minimum Energy Efficiency Standards MEES) and don’t offer what potential tenants would regard as ‘attractive’ workspace and features. It’s here that the risk of obsolescence is highest.

There are three key risk factors at play in the market right now. The first, mentioned above, is a growing body of environmental legislation. MEES currently requires a minimum EPC rating of E for office space. Surprisingly, some buildings don’t even meet this standard. Future plans are to raise that minimum to a C and then B – though no exact date has been given for this.
The second risk area is in changing tenant requirements. Several reports from the past couple of years have highlighted that tenants will now pay more for buildings with good sustainable credentials, for example a BREEAM or NABERS rating. The flipside of this trend is that they will avoid buildings which don’t match their corporate sustainability goals.
The third risk area, and one that’s very familiar to the property sector, is location. But there are two sides to this story. One the one hand, out-of-town offices are doing well at attracting tenants who want to provide workspace for employees who don’t want to commute to a major city centre. They are providing ‘hubs’ for shorter commutes which allow staff to be office-based.
The other aspect of this is that there is what Cushman & Wakefield identify as a small but widening gap between the valuations of the top quartile (grade A) offices in central areas and those beyond city environs. At the European level, figures show that this difference is around 2%, a small figure but it’s the highest level on record and one which gives potential investors in buildings pause for thought.

Too late to upgrade?
A recent discussion hosted by Bisnow highlighted the impact of these risk areas on the market. Real estate valuation measures suggest that office valued have fallen by 25% to 30% since the pre-pandemic market. However, the reality is that those figures largely apply to older, less attractive offices that are not ‘best in class’.
Of course, a fall in value may be the route to a new future for some buildings. The SectorScope has covered many stories in the past year that show investors buying buildings for refurbishments that focus on delivering high BREEAM and NABERS scores – along with attractive features to draw in high-paying tenants.
A global report from JLL highlights the potential of low-carbon retrofits to create value. JLL’s global survey of 46,600 buildings across 11 sectors revealed that 65% of office buildings face stranding risk by 2030 without action to improve performance, reflecting the figures from Cushman & Wakefield.
JLL regards this as an opportunity for the property sector to decarbonise and unleash value. A shortage of low-carbon office space for environmentally-focused occupants makes for an attractive proposition. JLL points to electrification, energy efficiency and clean energy strategies as key to bringing buildings up to standard for today’s tenants.
But not every ugly duckling has the potential to become a swan. Sometimes, the capital investment required for a refurbishment of this kind simply doesn’t stack up, particularly in an era of higher interest rates.
The question then is what happens to obsolete office buildings? The demolish-and-rebuild approach is far less attractive now that the property and construction sectors are focused on reducing carbon footprints. And in many areas, planning permission prevents it.
A report from property consultant Montagu Evans from September 2024 highlights this problem as ‘The coming wave of office obsolescence’. Their research combines an assessment of 'viable’ refurbishment and where EPCs fail to meet the proposed B grade MEES standards. It estimates that at least 25% to 30% of the UK’s office stock is “likely to become permanently redundant over the next few years.”
Options for change of use
All three reports point to change of use as an important option for office space. In 2024. the government updated its Permitted Development Rights to make it easier to switch offices to residential properties in England without permission from the local planning authority.
However, as The SectorScope has previously noted, it is not easy to convert offices to accommodation and there are very few examples of this being done successfully. The government’s own 2020 study found that homes created through PDR created “worse quality residential environments” than those that required planning permission.
One alternative to permanent accommodation can be to transform old office buildings into hotels.
For example, in 2023 Whitbread, owners of Premier Inn, acquired a £56.5 million office building in the City of London for conversion to a hotel-led mixed-use development. And in November 2024, Travelodge closed a deal on an office building in St Paul’s London with a view to converting it toa 95-room hotel with café and bar.
In fact, one report highlights that across 2023 and 2024, 25% of office sales have been to developers seeking to convert these properties into hotels. A report from Knight Frank highlights some key office features that point to successful hotel conversion: low- to mid-range floor to ceiling heights; a strong locational driver; flexible floor plats.
Another option is conversion of an office building to purpose built student accommodation (PBSA). Knight Frank points to several of these projects in London, where there is an enormous demand for PBSA in a growing market. In October 2024, Global Mutual and Patron Capital gained consent to convert Leeds offices at the St Johns Centre into a 287 room PBSA. The new building will include a private roof garden. Again, this is a city where demand for student accommodation is high.
Co-living schemes also lend themselves to the right type of office conversion. Another example in Leeds is Watkins Jones plans (approved in November 2024) to convert an empty office building into 230 co-living apartments. The refurbishment is targeting BREEAM Excellent and will make use of low-carbon technology such as heat pumps, PVs and energy-saving controls.
Most recently, the re-use of older office buildings as data centres is starting to gain traction as an idea. New provider, Nebula is specifically targeting empty offices with rapid deployment of its data centre technology.
It’s an option that could be very attractive to building owners, thought there are capital costs and very specific requirements to consider. These include the correct power supply, high speed internet connection and the ability to deliver the right level of cooling.
Nevertheless, in the face of a seemingly unending demand for data centre spaces, it may well prove an attractive retrofit alternative. As JLL points out, retrofitting an office as a data centre is a faster solution than building from scratch, while also using fewer materials.

Office buildings – the wider impact of their demise
The impact of office obsolescence doesn’t just fall on building owners and developers. A fall-off in available workspace in smaller towns reduces the options for small businesses that are growing and looking for affordable offices. It also shrinks the rates income for local authorities at a time when budgets are hard pressed.
In addition, there are many other small businesses that rely on the presence of offices and occupants for their income – from local cafes and sandwich shops to dry cleaners and pubs. The demise of an office building can have a significant ripple effect on its surrounding location.
With the construction and property sectors increasingly focused on the carbon footprint of their activities, re-thinking how less desirable office buildings can find a new lease of life becomes more important since demolish and rebuild is not the best first option.
Support through lighter-touch planning can be helpful to support changes of use, though not if it only results in poor quality housing.
The challenge of what to do with offices that don’t meet modern regulations or tenant requirements is becoming a pressing issue across Europe. It will require a leap of imagination from designers and developers as well as investors to give them a viable future.