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  • Writer's pictureKaren Fletcher

The SectorScope Analysis: Offices

Updated: Mar 29, 2023

February 2023

1. Facts and figures The UK has around 900 million m2 of office space, according to figures from the Financial Times and the UK Valuation Office Authority (VOA). The sector ranges from high-end HQs for corporate occupants to small two-person offices in shared spaces. Quality varies widely in terms of fit-out finish and factors such as sustainability and energy performance, which are increasingly important in this market.

There is no escaping the fact that office buildings are a global commercial investment vehicle, and their development is greatly influenced by where the money flows. Right now, there is growing demand from financial backers for high-quality office space that also has sustainability credentials. It’s a tough ask, which is seeing prices for buildings that can meet these requirements rise well above the market average.

Tenants are also a vital part of the picture for UK offices, and they are also pushing for high-quality workplaces. As the UK switches to hybrid and four-day-week working, businesses need less space but want plenty of facilities to keep staff coming back to the office. That could mean on-site cafés, gyms, showers, and sustainability credentials.

2. Factors impacting building services specification in the office market The 2020s have seen a revolution in the UK office market. Pre-COVID, some businesses were creeping towards a limited form of hybrid working for some staff, but it was a tiny proportion of UK companies. Most managers wanted everyone in the office five days a week. In 2023, those days seem like a fading memory.

Keeping ahead of office sector requirements for building services systems means understanding the factors influencing how office buildings are used:

Working life The office is, of course, a place of work. How that work is structured and organised significantly influences the buildings and building services in them. The once desk-bound office worker is now operating from home or a ‘third space’ for two or three days a week. As a result, the office has different functions and requirements. And the changing demands of tenants and building owners mean that building services must respond in kind.

A growing number of businesses are reconsidering how much office space they require. Management consultant PWC’s research (conducted in June 2021) of the UK’s 258 largest companies showed that 30% will reduce their office space requirements in the coming year.

There is a trend to relocate to smaller but higher-quality spaces. The aim is to keep staff interested in returning (for at least some of the week) to attractive workspaces that offer facilities they can’t get at home.

In February 2023, the trend to less space continued as LinkedIn News asked, “Could big, flashy offices be a thing of the past?”. The story quotes research from Bloomberg which shows that 25% of London companies are reducing their office space, with a further 18% opting for co-working and flexible office spaces.

If ‘big’ offices are no longer in vogue with corporate tenants, they are certainly leaning towards the ‘flashy’. Several leading property consultants report that Category A or A+ fit-out office space is experiencing soaring rents while lower-quality office buildings languish. This has been termed the ‘flight to quality’.

Features earmarked as attractive by the new corporate market include private working spaces (so that employees can work in peace), with areas for the kind of collaborative working that can’t be done at home.

A good example is the recently-completed Mace project in Farringdon, London. This office includes event spaces, a pop-up retail area and free-standing meeting pods.

For building services systems, these requirements mean that design flexibility is crucial. The ‘standard' office layout is no more, with less predictable patterns of open and closed spaces now considered more desirable. Adding features such as gyms and showers also increases hot water demand.

Sustainability, energy efficiency and legislation Twenty years ago, the market questioned the value of green offices – would people pay more for sustainable buildings? Today, the answer is a resounding ‘Yes, they will’.

Reports from the market show that sustainable office space is trading at a 20% premium in London. And big investors are chasing green office buildings with big money. So even in the difficult trading conditions of early 2023, Grade A sustainable offices are holding their own.

Some figures put the value even higher, with London offices that can boast a BREEAM or LEED certificate earning 26% more in sales prices than those without.

But the underlying reason that sustainable offices are gaining this sort of attention is that they are in short supply. The UK office market is ill-prepared for changes to Building Regulations and the country’s drive to become a Net Zero economy by 2050.

Perhaps the most pressing example is the impact of the Minimum Energy Efficiency Standards (MEES). Currently, when a building is sold or leased, it must achieve a minimum Energy Performance Certificate (EPC) rating of E. However, in 2027, that minimum rises to a C, and in 2030 the requirement is B. A large tranche of office buildings falls short of that target.

In fact, figures from property specialists Cushman & Wakefield showed that in 2021, only 4% of London office buildings had an EPC rating of B. Things have not improved much since then. This would leave 96% of the capital’s office buildings obsolete by 2030.

Building services are significant energy users in office buildings, so the provision of energy-efficient equipment will be key to new and existing buildings meeting MEES requirements. Also, with the drive to decarbonise UK buildings, we may see a rise in demand for electric heating and hot water systems (e.g. heat pump equipment) to replace gas boilers.

The great office refurbishment The result of the push for top-class office space and higher sustainability targets has been a flurry of office refurbishments as building owners try to keep their investments up-to-date and marketable.

Some investors are seeking out buildings with low EPC ratings for refurbishment. Market commentators note that buildings once considered viable are now ‘tired and run-down’ – and investors can snap up more of that type of stock than ever.

This ‘great refurbishment’ is underway across the UK’s major cities. Improving energy efficiency in a building can be costly, but the current higher rents for sustainable office space mean that buildings which can be back on the market post-refurb are quickly snapped up by tenants or buyers.

With refurbishment focused on greater energy efficiency, the replacement of older building services systems will be high on the agenda. Updated air conditioning systems (as one example) can also improve the attractiveness of a building to new tenants.

Health and wellbeing These factors are closely linked to new patterns of working. Office-based employees want to know that the indoor environment where they spend time supports physical and mental health.

This has seen the introduction of biophilic design (plants) and natural lighting in modern offices. In addition, the latest British Council for Offices (BCO) Specification Guide reflects a new focus on occupant wellbeing. It offers several recommendations, including an allowance of 10m2 of space per occupant and increased outdoor air supply levels. The BCO says the changes advise designers: “how to create healthier offices that support changing working patterns while reducing carbon emissions”.

Building services professionals will already be aware of the importance of indoor air quality IAQ), which has been supported by campaigns from associations such as BESA.

The delivery of more ‘outdoor air’, as recommended by BCO, must be considered carefully – outdoor air is not the same as ‘fresh’ air, particularly for offices in city centres. Applying ventilation systems and filtration will be an important aspect of building services that aim to improve IAQ. In addition, the introduction of outdoor air will impact indoor temperatures, raising the prospect of increased heating use. As a result, there will certainly be demand for products and services which can deliver healthy indoor environments while balancing energy efficiency and carbon considerations.

3. The future of the UK office market and building services requirements The future of high-quality, sustainable office buildings that provide attractive and healthy working environments is set for a bright future. As corporate clients and investment giants have set out their carbon reduction pathways, they want buildings that deliver on their promises.

New build offices around the UK are demonstrating a switch to ‘green’ design and building services. Higher building values and long queues of potential tenants now justify the higher cost of this approach.

Office buildings which don’t meet these requirements are struggling. With companies able to let their office staff work from home, there is no need to pay for dowdy office space. Owners are either selling up or sprucing up – there isn’t much else they can do. Even where office space is turned into housing, extensive rebuilding is required to provide quality outcomes, as examples in London and Cardiff demonstrate.

Legislation and standards on office building performance are developing and becoming more sophisticated. For example, there is a new focus on the embodied carbon of buildings, and an element of this will likely be included in the Building Regulations at some point.

There are already groups working on calculation methods for the whole life carbon of buildings, which will impact the design and operation of offices in the future.

Another change on the horizon is the use of Energy Performance Certificates (EPCs). Many experts have long regarded these as a blunt instrument, indicating building energy performance as designed – not in-use.

The UK government is looking at potential alternatives, though one which is gaining ground already is NABERS. This scheme, developed in Australia, where it has proved very successful in reducing building energy use, focuses on measured energy consumption. NABERS also bridges the gap between building owners and tenants by giving shared responsibility and benefits from operational energy efficiency.

The future of offices seems set to be more sustainable than ever, and for building services that means providing comfortable indoor environments that are also energy-efficient and low-carbon. Owners of existing office buildings will be looking for solutions that can demonstrate cost-effectiveness and payback in terms of reduced energy costs and a more attractive indoor environment.

4. What this means for marketers, sales teams and product developers Offices will remain a significant market for most building services manufacturers and providers. For companies with products that offer strong (and provable) green credentials, now is the time to highlight those USPs in marketing information.

Flexibility and delivering a productive and healthy indoor environment will also be essential. Indoor air quality is dominating the conversation, so ventilation systems with solid credentials on reducing indoor pollutants will be in demand for some time.

For sales teams, the main contractors involved in new-build and refurbishment projects aim to show they can deliver on their clients’ ambitious ESG targets. Companies seeking to work with them need to be able to demonstrate similar thinking.

Building services systems will have to deliver robust performance and strong environmental credentials. For example, manufacturers should prepare information on their kit's embodied carbon because this will be required for whole-life carbon calculations on construction projects. Getting ahead of that curve will show that you are aware of the importance of these issues.



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