Shift Market Conditions To Favour Refurbishment Over New-Build
Thursday, 04 February 2010
According to the latest research by leading UK property consultant GVA Grimley, recent and predicted future market trends are increasingly favouring refurbishment as an alternative to new-build.
Due to lack of finance and concerns about the occupier outlook, speculative development has slowed to almost a standstill. The time-lags associated with the development cycle mean that as the occupier market returns, there is likely to be a shortage of Grade-A supply in some markets. As developers and landlords seek a more feasible approach to deliver office stock, conditions have pushed the need to consider refurbishment further up the agenda.
Dan Hodge, head of office agency at GVA Grimley's Leeds office comments: "We're already beginning to see a shortage of Grade-A office space in the West Yorkshire market.
"In 2005 - 2006 Leeds had approximately 1,250,000 sq ft of Grade A accommodation planned for development by 2012. Of this, only 30 per cent has come, or will come to fruition in this time span. Schemes such as Bridge House, City Square House and Prince William House have not been touched due to one reason or another. Therefore, with development finance expected to be in short supply for an extended period, refurbishment needs to be a far greater consideration for landlords.
"Lease terms are becoming shorter and more flexible as landlords seek short-term assurances and occupiers dare not commit to long-term leases while the outlook remains uncertain. This therefore means the tenant turnover rate will increase significantly, raising the need to refurbish. To add to this, the increasing demands of the Government and occupiers, particularly with regard to energy efficiency, will force landlords to re-assess their portfolios now more than ever, in order to ensure their buildings remain an attractive investment."
There are a number of areas in which refurbishment can present benefits both in terms of cost savings and efficiency when compared with redevelopment:
- - Refurbishment is likely to see faster progress through the planning system as building regulations tend to be less stringent than with new-build
- - Demolition and waste disposal costs will, in most cases, be less dear due to the lower volume of waste generated
- - By retaining and recycling existing material, building material costs can also be minimised
- - A phased refurbishment may also present an opportunity to operate a business in one part of the building while the other undergoes improvements, thereby perpetuating income for the owner. Refurbishment is often a quicker process also reducing the void period.
- - Refurbishments offer one of the highest levels of tax relief available with potentially 60 - 80% of a projects total expenditure qualifying for one category or another. In the extreme case, if a project is in a disadvantaged area of the UK and the refurbishment brings the property back into use, 100% relief could potentially be realised through Business Premises Renovation Allowances.
- - BREEAM credits will be awarded to schemes where existing structures, building materials and land are re-used or recycled.
Looking further ahead, as office occupiers reduce the amount of energy they consume as a result of rising energy costs the attention of regulators with turn to the issue of embodied energy conservation, further enhancing the appeal of refurbishment over new-build.
Jon Anderson, director in charge of GVA Grimley's Leeds Building team, adds: "I've seen an increase in developers and landlords interest in incorporating more sustainable technologies and materials as part of their specifications.
"GVA Grimley has several BREEAM In-Use qualified assessors who can evaluate a refurbishment scheme and award ratings, similar to those which have been in place for new build projects for some time now."
However, there is no one-size-fits-all strategy as substantial risks and technological barriers may, in some cases, present new-build as the more efficient option. For example, constraints arising from the form and orientation of the existing structure and building fabric, increased safety risks, contingency for unforeseen costs and the need for specialist expertise to tackle technical challenges.
Therefore, deciding on the most economically sustainable route requires a detailed analysis of costs, risks and benefits.
The industry has some distance to go towards hitting government targets for carbon reductions but there is much that can be achieved though simple, low cost improvements. Where redevelopment is not viable, refurbishment should be a priority for investors and developers.
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