Nearly a third of UK office stock faces obsolescence over the next 10 years, as long-term structural shifts reshape the market.
According to property consultancy Montagu Evans’ Future Shock: The Coming Wave of Office Obsolescence report published today, this can be attributed to three factors: the growing concentration of offices in city centres, increasingly stringent environmental requirements in buildings, and hybrid working patterns.
As office employment has become more concentrated in city centres over the past 20 years, the most accessible locations have become the most desirable. Between 1998 and 2008, half of office-based jobs were created across 48 local authority areas, while between 2012 and 2022, that figure was 23, and local authorities in amenity-rich cities, which promote office-based job growth through sympathetic planning policy and good transport links.
Offices not in these more desirable locations have become less financially viable – especially if they require investment to meet future environmental standards as they rise.
The UK government has been expected to raise the minimum permissible rating for buildings to B by 2030, with a possible step up to C in 2027, although those plans are under review.
If enacted, Montagu Evans said, that change would put office stock at high risk of redundancy in cities such as Liverpool, Nottingham, Sheffield and Bradford, where rents tend to be too low to justify the costs of large-scale refurbishment.
As a result, the report said it is becoming increasingly important for landlords to improve their service offering to retain tenants, with the help of councils where necessary to increase the vibrancy of surrounding neighbourhood amenities.
This would also help address the challenge posed by changing working patterns by enticing workers back into the office.
Figures from Remit Consulting found that peak office attendance remains between 70% and 80% of pre-Covid levels from Tuesday to Thursday, but the figure was much lower at other times – 50% on Monday and 20% on Fridays.
The report predicts that, as the trend continues, companies will see opportunities to reduce their office requirements and move towards prime locations.
The three combine to render at least 25-30% of UK office at significant risk of permanent redundancy over the coming decade.
Yet, the report says, this should not deter buyers from investing in offices. Rather, it increases the importance of investment in specific areas and in buildings with strong environmental credentials.
At the same time, local and national government will play an important role addressing the issue.
While local authorities can curate planning policy to more office space in key areas, the report highlights the necessity of increased certainty from the national government, especially in relation to future EPC targets.
This will give investors with assets on track for obsoletion more time to reposition and consider alternative uses, whilst also increasing market confidence to attract much needed investment.
Jon Neale, the author of the report and head of research and insights at Montagu Evans, said: “The office is far from dead. There is still a strong investment case for good quality, well-located offices, which will remain a fundamental cornerstone of our cities and how our economy works.
“Investors, developers, local authorities and others need to plan now for these changes to explore the best scenarios for underperforming, under-used assets and create resilient portfolios for the next decade.”
Simon Rogers, a partner at Montagu Evans specialising in development, said: “Following robust review of assets and portfolios, the next step will have to be future use – where can viable refurbishment work and what are the alternatives? Residential may well be the most obvious option, especially given the recent changes to permitted development rights, although this may in some cases be prevented by building suitability or local authority level exceptions.”
Rogers explained that, while other options include residential, hospitality and retail uses, all would require planning consent regardless of their form, which requires urgent collaboration between local authorities and stakeholders.
He added: “For some, adaptive re-use will become easier, although for other buildings redevelopment may be the only option, but only with close partnership with the local authority and other stakeholders as part of a well thought-through and comprehensive regeneration programme. The key point is that this planning should start now to preserve and enhance value.”
Image © Global Warming Images/Shutterstock
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