COMMENT The London office market has become increasingly polarised in recent years, with the pandemic acting as a fork in the road. Knight Frank has calculated that more than half of London office stock is currently rated below EPC C, equating to around 140m sq ft of buildings in need of upgrading and future-proofing. Our commercial colleagues tell us that while the prime office market is seeing heightened levels of demand, lettings of tired, secondary office space have fallen and demand is beginning to wane.
For this type of stock, the potential for “knock down and rebuild” is being challenged due to the embodied carbon within the buildings – the recent high-profile Marks & Spencer Oxford Street decision is a good example.
While not suitable for all spaces, prime central London residential could provide new opportunities for some buildings.
Unique selling points
In the prime central London residential market there is a depleting pipeline of stock unable to match the relentless appetite for apartments. In 2015, we had 3,000 units in the pipeline above £3,000 per sq ft; if we stood still and did not continue to add stock to the pipeline, by 2026 this number could decrease to just 300.
However, repurposing space and giving it a new prime central London residential use is not without its challenges. These include deep floorplates, low floor-to-ceiling heights, degrading buildings and planning constraints – especially in core office locations. Furthermore, residential housing standards are only getting more stringent. Offices built pre-1986 tend to be most suited to conversion, as they were built before large, open-plan, lateral offices became the norm.
Unique selling points – such as views, historic architecture and outstanding amenity – make commercial-to-residential conversions worthwhile if price premiums can be achieved, despite high costs. For example, former office tower Centre Point is architecturally striking, with its height offering far-reaching views. It lent itself beautifully to 82 lateral apartments, achieving £3,000 per sq ft.
Meanwhile, Westminster’s historic landmark, the Old War Office, is an old Edwardian building that now offers 85 residences and a five-star Raffles hotel. Its £1.4bn restoration created a unique and distinctive development in prime London – an architecturally-stunning building with exceptional ceiling heights and an extraordinary service offering.
In Bayswater, the former Whiteleys department store has undergone a £1bn redevelopment into 139 apartments and London’s first Six Senses spa. The Whiteley has already sold 60% at a 118% premium over Bayswater, thanks to its exceptional design and even more exceptional amenities.
Out-of-the-box thinking
While there are no ordinary offices in these examples, more conventional office buildings also offer repurposing solutions that may be worth exploring, such as hotels, student housing and co-living, which are being considered for all sorts of office retrofits.
They don’t possess the same design challenges that build-to-sell residential faces, such as the requirement for dual-aspect units. In addition, there are also the potentially imminent changes to permitted development rights which our planning team is tracking – through a return of this less onerous planning route to change of use, there could be considerable opportunities.
Permitted development is not the low-quality housing it’s often associated with; it now adheres to stringent design measures, ensuring the standard of homes is more than adequate.
Insatiable occupier demand for highly sustainable and amenity-rich offices has resulted in a bifurcation of the market, leaving an exciting opportunity to transform some secondary office space into prime central London residential. While this could provide part of the solution, it must be done with a rational understanding of what works and what doesn’t for repurposing and redevelopment.
The prime residential market needs stock, and out-of-the-box thinking is required to deliver it. When dealing with unusual or unique buildings, some of the challenges can feel insurmountable. But with vision and dedication, a gem can emerge – the Old War Office is a great example. And for those more conventional offices, there are alternate routes to be explored. The conversion opportunities for office space are huge, with many sites ideally suited to become prime central London residential retrofits or emerging alternative uses.
Abigail Heyworth and Yazmin Murat are partners at Knight Frank
