Viewpoint - 11/02/2011

To refurb or not to refurb: A modern day landlord's dilemma

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Achieving economic, social and environmental equilibrium through refurbishment need not be difficult or expensive, but does require a detailed understanding of local market conditions, as well as the interrelationships between the costs, risks and benefits.  Guy Gilfillan, Head of our Yorkshire region, explains.     


Environmental concerns remain firmly on the political agenda

Although the long-term implications of the Government’s Comprehensive Spending Review have caused a sharp downturn in business confidence, stricter regulations and the introduction of a £1bn Green Investment Bank are both unmistakable signs that environmental concerns remain very firmly on the political agenda.

Amendments to the European Energy Performance of Buildings Directive (EPBD), the introduction of the CRC Energy Efficiency Scheme, and changes to Part L (Conservation of Fuel and Power) and Part F (Means of Ventilation) of the Building Regulations all came into force this year, and will change the direction of development and refurbishment projects going forward.

But it’s not just the Green agenda that is creating a veritable minefield for owners of existing buildings.

Simply re-decorating is no longer sufficient to secure tenants

The changing needs of the modern occupier towards more flexible working practices such as hot-desking and break out areas, as well as technological advancements including the introduction of energy efficient HVAC (heating, ventilation and air conditioning) systems, mean that simply re-decorating or re-carpeting is no longer sufficient to secure that elusive tenant.

While new schemes are designed and built to accommodate the latest occupier requirements, achieving such a high specification through retrofitting might not be so straightforward, and could potentially render a refurbishment project unviable. It is therefore essential for building owners to assess the feasibility of refurbishment or redevelopment potential before embarking on a major project.

Landlords risk buildings becoming obsolete if they do not act soon

In a tough economic climate it is difficult to justify any form of capital expenditure, with one’s natural instinct to conserve funds and mitigate any unnecessary expenditure. However, with capital growth increasingly linked to tenant covenant strength and lease structure, this reactive and somewhat short-sighted approach could potentially spell disaster.

Almost every property built prior to the last decade, which has not had the benefit of extensive modification during its lifespan, will now struggle to attract occupiers without the need to offer discounted rents, highly incentivised terms and/or increasingly flexible leases.

Landlords wishing to escape prolonged void periods and additional overheads such as empty rates, not to mention substantially reduced investment returns, should therefore assume that their buildings will rapidly become obsolete if they do not act soon.

Strong case for refurbishment projects

Deciding upon the appropriate level of intervention and investment is as individual as the building itself. However, for illustrative purposes, an example of the hypothetical costs and associated benefits of three levels of refurbishment can be found in our report.

Click here to download our Recycled Office Buildings Report (PDF).

The advocacy of current and future legislative measures, together with occupiers’ forward thinking working practices, and the time lag associated with design and build, will drive the case for refurbishment projects until the next wave of speculative development emerges. Through proactive management, landlords can significantly enhance the investment performance of their somewhat dated assets.


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