London Office Space Goes Green, Helping Developers Get in the Black

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Companies are choosing state-of-the-art buildings with low or zero carbon emissions to lure employees

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As a result, green offices in London command rent 12% higher than the market average, according to a recent study by real estate agent Knight Frank.

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“Most of our tenants are multinational, and their demand is consistent across London, and New York and Sydney. They want an environment in which they can bring their employees back,” said Brad Haller, European Head of Real Estate at Brookfield Asset Management.

In August the British government ended its official “stay at home” policy and encouraged workers to return to office. Although some social-distancing measures remain in place, 90% of UK workers over the age of 16 now have at least one COVID-19 vaccination. The booster shots program has just started.

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According to property-services firm CBRE, about 816,000 square feet of London office space was rented in August. That, the firm said, was up 63% compared to July, though still below the 10-year monthly average of 1 million square feet.

Several North American firms have recently swung into action with a series of major asset acquisitions. Toronto-based Brookfield is one of London’s largest landlords, working with partners to own 10.2 million square feet of office space, including two buildings in the City, the British capital’s historic financial district.

Brookfield said it spent £850 million, the equivalent of about $1.2 billion, or £1,133 per square foot, on these properties over the summer.

Mr Hailer said that while London is “not at full capacity,” leasing inquiries have been rising since August, when Prime Minister Boris Johnson ended the government’s work-from-home guidance. He predicts that occupancy will reach the same level as pre-pandemic by the first quarter of 2021.

Barings LLC, an investment-management firm based in Charlotte, NC, was convinced enough to spend £43.25 million on the London office market at a site in central London’s South Bank neighborhood in August.

It plans to replace the existing building on the site with a new building that will be a world first for Barings—a “pure zero carbon” office building. The property has a roof garden and terraces on each level, bicycle parking and showers, and windows that can be opened to allow fresh air in. A smartphone app would allow workers to travel through buildings without needing to touch doors or elevator buttons. Ian Mayhew, the company’s managing director for real estate asset management.

New York-based BentleyGreenOak is expected to begin construction of a £1 billion zero-carbon mixed-use office building in London’s Westminster neighborhood next year. The building will be powered by renewable electricity and will have 30,000 square feet of green space, including plots to grow food, the firm said.

Ben Bianchi, managing director and head of real estate for Europe at Oaktree Capital Management in Los Angeles, is overseeing the £135 million upgrade and expansion of the firm’s 30-year-old building in Canary Wharf, London’s second financial district. .

Its heating, lighting and power systems will be upgraded so that it produces zero carbon emissions, while the stone and marble façade will be replaced with large triple-glazed windows for natural light, and employees will have access to a roof terrace.

“The tenants in the market are large people who are looking for at least 100,000 square feet and are almost exclusively looking for a brand new health and wellness space,” Mr. Bianchi said. “Firms are competing for the best and brightest, and that new graduate is completely focused on the environment.”

Still, Matt Oakley, head of commercial research at real-estate agent Savills, said he has “slight concern” that London could end up with an oversupply situation if landlords focus too much on green, and expensive buildings. Is. “We need spaces for all kinds of companies,” he said.

He also points out that no matter how green the building’s credentials are, it will struggle if it doesn’t even have public-transportation links. “Public transport is still more important than anything else,” he said.

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