Over the next decade European office buildings face an increased risk of value depreciation and obsolescence, according to the Jones Lang LaSalle Offices 2020 research report.
Over the next decade European office buildings face an increased risk of value depreciation and obsolescence, according to the Jones Lang LaSalle Offices 2020 research report.
The rate of increase of office obsolescence, where the building is no longer desirable or fit for use, will accelerate due to increasing sustainability legislation, advancing workplace technology and evolving employer requirements.
As a result, substantial amounts of office stock will depreciate in value and be converted to alternative uses. For example, in Amsterdam, take-up of office space over 1,000 m2 totalled 160,000 m2 in 2011, whereas over 93,000 m2 of office space was allocated for uses such as hotels and residential. In Birmingham, take-up over 1,000 m2 totalled 31,100 m2 in 2011. This compares with 50,000 m2 which was allocated for alternative uses. This trend will intensify as legislation and technology continue to evolve.
'The majority of European office buildings are old,' said Bill Page, head of EMEA Offices Research at JLL. 'Old buildings will require even more investment and upkeep to ensure they are fit for purpose. This comes with greater risk.'
On top of high volumes of adaption for alternative uses, current low rates of replacement of offices in Western Europe, of between 1% and 3%, mean that as stock continues to age, greater strain is placed on investors and occupiers to future proof current assets and safeguard rental income, reduce voids and attract companies willing to take space in the building.
'Whilst depreciation and obsolescence are not new for real estate, they impact offices more than any other commercial sector. Staying ahead of the game is a perennial issue. In France, anecdotal evidence suggests that investors are already pricing in the cost of upgrading buildings to the standards required by Grenelle II, the environmental laws. This will impact property valuations, especially secondary product that may require more substantial financial investment,' added Benoît du Passage, managing director for France and Southern Europe at JLL.
