We recently blogged about encouraging signs from new speculative builds in London’s office market. Now comes the news that London has been named the best city in the world to invest in major refurbishment, according to a study from ARCADIS.
A leading consultancy in global asset design, ARCADIS undertook the study in 15 cities across the world to determine the expected return on investment from major refurbishments on buildings more than 20 years old. And what they found was a return on capital expenditure of close to 10 per cent, significantly higher than the second and third place cities, Warsaw (7.5%) and Milan (6.0%).
ARCADIS measured the return by looking at increases in rental income, based on full occupancy. ‘Major refurbishment’ is defined in the study as projects that extend the life of an office space by up to 20 years. ‘Minor refurbishment’, on the other hand, describes aiming to extend the space for up to another 5 years. Viewed in the latter terms, London placed second in return on investment at 8.5%, behind Madrid at 9.6%.
Frankfurt and Amsterdam joined London, Warsaw and Milan to round out the top five best investments for major refurbs. And what seems to be the rationale behind the strong showings of these European cities? The availability of robust older buildings with enormous potential for re-designing and re-fitting the space to accommodate modern offices. As Matthew Cutts, Global Financial Institutions Sector Lead at ARCADIS notes, “In London, for example, there has been a growing trend for older offices with character and in good locations to be refurbished.”
Another contributing factor to strong return on investment appears to be the development of new business districts away from more established areas – for example, King’s Cross or Canary Wharf in London. One advantage these up-and-coming neighbourhoods offer is the opportunity to expand the actual floor space – something a multi-occupier building in say, New York, wouldn’t be able to do. It’s also worth noting that cities boasting a favourable planning and regulatory environment also fared well in the study, with returns ranging from 6-10%.
While new build construction is to be applauded and benefits the economy as a whole, it is a much slower process, with much higher capital expenditures. On the other hand, refurbishment remains a robust area of growth, offering lower carbon costs, shorter development periods, and reduced exposure to rental market risk.
If you’re moving into a new or refurbished space, or considering renovating your existing office, Johnsons Business Moves provides a complete relocation package that is tailored to your specific needs. We can help you plan the space, move your staff and assets, or recycle your unwanted items. One of our team will be happy to discuss how Johnsons can help you. Email us at [email protected] or call our London office direct on 0208 2262144.