The real value in refurbishment

Corporate carbon commitments are having a lasting impact on real estate investment decision making. They have accelerated decarbonisation activities across the built environment and are also one driving force behind the bifurcation of value we see today between Prime offices and 'the rest'.

JLL is now observing an important debate on the secondary impacts of demand for the best low carbon space. For assets just off pitch, or just off prime, landlords are faced with a difficult calculation on the economic value of a ‘light green’ refurbishment compared with full ‘deep green’ redevelopment. Challenging enough in its own right given fluid market conditions, determinations on the 'real' value of creating zero carbon buildings are opaque, just at a time when investors need clarity.

Planning - notably the seminal Oxford Street Marks & Spencer decision – further confuses the landscape. It also provides a sharp reminder that there are considerations on the balance between embodied carbon protections and the longer-term operational carbon reductions that can accrue from wholesale redevelopment. A slow move to consider the ‘whole life carbon’ of developments, which takes account of both, is a much needed step forward.

Corporate carbon commitments are translating into serious leasing demand for high-quality, low carbon space. JLL Research shows that the number of new corporate commitments jumped 5-fold over the past 24 months. In floorspace terms, this represents a ratio of corporate floorspace requirements to planned prime pipeline in the order of 2:1. In short, occupier carbon commitments are driving demand, rents and in time, asset value.

Notably, the JLL January investor survey shows a clear shift in global investor demand in Central London office space from 10th to 1st position in just the last 6 months. Investors get the outsized opportunity that has emerged.

This alignment between commercial returns and carbon reduction is exciting. For it to drive a new wave of refurbishment activity and redevelopment, we need a host of improvements to carbon measurement, tracking and harmonisation of standards. The eagerly awaited Net Zero Carbon Building Standard due out later this year will help answer the question of what a net zero carbon building actually is. Oh, and we need planning to comprehensively do its job by providing clarity over the appropriate approach to protect embodied carbon – unfortunately, the industry proposal for new building regulations (Part Z) targeting embodied carbon does not seem to be getting much traction.

Wholesale improvements in office quality have widespread benefits for workers, corporates and investors/ landlords – whether that’s related to carbon, biophilia, wellbeing or the local community. The government can be a catalyst for change if it seizes the opportunity while enhancing the attractiveness of the UK to corporates, protecting jobs and economic growth.

And remember – we have a collective responsibility to protect our future.