September 4, 2014
London offers the best returns on office refurbishment of any city in the world, according to a new report from ARCACDIS. The firm’s survey of buildings more than 20 years old in thirteen cities found that returns on capital invested in major refurbs (which extend the life of the office by up to 20 years) in London were nearly ten percent, significantly higher than second placed Warsaw (7.5%) and Milan (6%). However, London was only ranked second for return on investment in minor office refurbishment, defined as a refurbs that aims to extend the life of the building by up to 5 years. Top place in this instance went to Madrid (9.6%), followed by London (8.5%) and Shanghai (7.9%). The least attractive market for office refurbishment was found to be Dubai, which the report claims is due to the large supply of new office space.
Top five city office refurbishment rankings – ‘major’ refurbishment
1. London 9.9%
2. Warsaw 7.5%
3. Milan 6%
4. Frankfurt 5.8%
5. Amsterdam 5.5%
Matthew Cutts, Global Financial Institutions Sector Lead at ARCADIS said: “These European cities all have large volumes of old office buildings that offer enormous potential to be extended or redesigned to increase their returns for investors. In London, for example, there has been a growing trend for older offices with character and in good locations to be refurbished. We are also seeing investors interested in investing to create workplace environments that align to support occupier business and brand strategies.”
The report found that, in other cities, a programme of minor refurbishment would be a better strategy to gain the strongest returns. For investors taking this approach, Madrid and London were judged to be the most attractive, whilst Shanghai and Singapore also made it into the top five.
Top ten city office refurbishment rankings – ‘minor’ refurbishment
1. Madrid 9.6%
2. London 8.5%
3. Shanghai 7.9%
4. Singapore 7.53%
5. Warsaw 7.47%
6. Milan 7.35%
7. Hong Kong 7%
8. Paris 6.99%
9. Frankfurt 6%
10. New York 5.4%
The report also claims to highlight that investment strategies can vary depending on the location of the office asset. In many cities modern, accessible new office space is being delivered in city quarters away from the established Business District, for example Marina Bay in Singapore, Kings Cross in London and Amsterdam Zuid in the Netherlands.
If vacancy levels increase due to these new, competing areas, the report recommends investors focus on the protection of office asset revenue streams by taking a ‘defend’ refurbishment strategy which will prevent the offices from becoming obsolete where there are relatively low tenant voids. The least attractive market for office refurbishment was found to be Dubai where the large supply of quality new commercial space makes the disposal of old office buildings potential a better option to maximise the value of the asset.
A full copy of the report can be downloaded here.