The shift in demand to prime space 

The office market is undergoing a major structural shift in demand away from low-grade space with a high carbon footprint, driven by:

  • the desire of occupiers to provide a vibrant, attractive, and sustainable work environment - vital for the recruitment and retention of talent, encouraging working from the office, promoting employee well-being, and meeting broader corporate ESG objectives.
  • shifting employment patterns resulting from the remote working revolution and technological advances such as artificial intelligence.
  • Minimum Energy Efficiency Standards (MEES) legislation, which now renders offices with an EPC rating of F and G legally unlettable (unless an exemption applies), and will be tightened further over the next few years.

These trends inevitably mean a growing overhang of secondary stock for which there is little or no demand.

Measuring the demand / supply mismatch

To quantify the scale of the problem, Carter Jonas recently undertook some detailed research. This analysed the EPC rating, BREEAM rating, age, and overall quality of office space from 110,000 individual records, to paint a picture of the UK’s office stock. Key findings include:

  • Properties within EPC bands F and G account for 17.2% of the office stock, meaning that nearly a fifth of all office buildings potentially became unlettable from 1st April 2023. However, the actual figure will be somewhat lower as exemptions will apply to some properties, some space may be in the process of being upgraded and re-assessed, and some may be vacant and awaiting a change of use.
  • Given the proposed tightening of the MEES regulations, a substantial proportion of office buildings will be unlettable by 2027 if upgrades are not carried out. Only 31.6% of the stock is band C or better, the minimum proposed MEES standard by 2027. A mere 8.3% of the stock would satisfy the proposed minimum MEES requirement of EPC band B from 2030.
  • Prime class 1 space, where occupier demand is now sharply focused, accounts for only 28% of the total UK stock. Therefore, nearly three-quarters of the UK’s stock is not of sufficiently high quality to attract a broad range of occupiers.
  • 55% of the UK’s stock by floorspace is more than 30 years old, and nearly a quarter was originally constructed before 1950. 11% of the total floorspace has been built since 2010 and should therefore meet relatively high sustainability standards.
  • 32.7% of London’s BREEAM-rated buildings are classed as Excellent or Outstanding.

Importantly, ageing and unsustainable stock can still have a role in meeting occupier demand. Repurposing older office space can help reduce the need for new construction and promote sustainable urban development, particularly when considering factors such as the embodied carbon contained in existing buildings and the environmental benefits of reusing existing structures. But, moving forward, much of its relevance will be defined by how proactive landlords and developers are in responding to legislation and the requirements of the modern workforce.

The impact of AI – not all bad news

Large language models such as ChatGPT and Bard are powerful, yet free and easy-to-use tools. They are turbocharging the use of Artificial Intelligence (AI) in the workplace, and indeed, we are witnessing a revolution in the way much office-based work is undertaken.

Our recent assessment of the impact of AI on the office market concluded that, whilst it is clearly a major market disruptor, there should be positive consequences. Key findings include:

  • AI will drive business growth and productivity in the medium- to long-term and presents an opportunity for the UK to improve its productivity performance, global competitiveness and ability to innovate. This in turn will benefit broader corporate office demand. 
  • AI is likely to eliminate specific activities but is unlikely to remove entire occupations. Conversely, it will lead to the creation of new roles, and even entirely new fields.
  • Employment will shift further away from routine tasks, in which the role of the office has tended to be more one of supervision, to high-tech, creative, and managerial roles. It will further cement the office as a high quality environment in which to collaborate, foster creativity and upskill employees.
  • New roles enabled by AI will tend to be higher value than those eliminated. This may enable higher rents for offices that provide the quality environments for staff that occupiers will demand.

The Carter Jonas research team has produced, in collaboration with our office and sustainability experts, a series of reports on the future of the office property market. Click to read The Impact of AI on the UK office market report, and The Sustainability of Office Stock in the UK and learn more about the profile of the UK’s office stock and the growth of AI.

@ Daniel Francis
Daniel Francis
Head of Research
020 7518 3301 email me about Daniel
@ Tom Roundell Greene
Tom Roundell Greene
020 3325 0102 email me about Tom
@ Michael Pain
Michael Pain
020 7016 0722 email me about Michael
@ Richard Love
Richard Love
020 7518 3299 email me about Richard
Daniel Francis has been Head of Research at Carter Jonas since 2018. He is responsible for delivering the firm’s programme of market and topic-based research, providing clients with the insight they need. Daniel’s main focus is the commercial market, and he works closely with his rural and residential research colleagues. 

Daniel is a member of the Investment Property Forum and the Society of Property Researchers.
I can provide advice on:

Michael is Head of Carter Jonas’ London Tenant Advisory Team and specialises in providing office search, lease negotiation, relocation management, rent review and lease restructuring consultancy services to office tenants based in Central and Greater London. He has over 20 years experience and his clients include international corporates such as Hitachi, Warner Bros and Hackett, not for profit organisations such as The Overseas Development Institute and The Nursing and Midwifery Council as well as owner-managed businesses including Wavex Technology, Credo Business Consulting and Turley Associates.

The range of consultancy services provided by Michael and his Team include advising on office availability, rents and rent free periods, undertaking property searches, representing tenants in lease negotiations, developing office relocation project plans, timetables and budgets and project managing each stage of the relocation process, including overseeing the pre-contract due diligence, and co-ordinating the activities of all those consultants who will be involved in the office move.

I can provide advice on:

Richard Love is a Partner, Head of Building Surveying in our London Commercial Team. Richard joined from Watts Group PLC where he worked since 2010, most recently as director in it's project consultancy group. Richard's role is to provide building consultancy services, including relocation management, contract administration, design, strategic procurement and conservation advice with our clients.

Career Highlights:

Ealing Town Hall:
Full external restoration of Grade II Listed Victorian Gothic town hall building. The project arose from a survey identifying incidences of dangerous stonework and the project incorporated extensive masonry repairs, reroofing, redecorations, stained glass replacement, access improvements and drainage improvements.  Works on site were delivered over an eight month period during which the town hall remained fully operational.

The Royal College of Psychiatrists HQ Relocation:
Project management services in respect of all aspects of the HQ relocation for this prestigious medical college.  The relocation centred around moving into a 50,000sq ft 1980’s office building and delivered a comprehensive strip out and refurbishment including the creating of canteen and catering facilities, conference space, library including antique book collection and sublet space.  The relocation was delivered in 9 months (inception to completion) and Richard also handled dilapidations matters on exit.

Career developments
Being appointed to the board overseeing the expansion of the Carter Jonas Commercial Division, which took place in early 2017. Also, managing the expansion of the Architecture and Building Consultancy team. The service line has doubled the number of specialists working within it in the last two years, becoming the largest team within the division. Further growth plans are currently in place for the next few years.

I can provide advice on:
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