by Brianna Crandall — May 3, 2013—Accelerating building obsolescence is becoming the single biggest issue in the U.K. commercial property industry, according to the latest research report from global financial and professional services firm Jones Lang LaSalle. The industry is facing a problem with depreciation and obsolescence, but JLL’s U.K. division says there is an opportunity for savvy investors and proactive occupiers to gain value through strategic refurbishment and proactive asset management.
Jones Lang LaSalle’s latest white paper, From Obsolescence to Resilience, explores the key factors driving obsolescence and considers how value can be created through strategic refurbishment and asset management.
The firm has identified three critical factors that will fundamentally increase the obsolescence risk and accelerate asset depreciation: 1. Legislation; 2. Corporate requirements; and 3. Workplace technology. Investors and developers will be forced to adapt quickly to these risks if they want to maintain solid asset performance.
In terms of legislation, the U.K. Energy Act 2011 will drive increased obsolescence, making it unlawful for landlords to lease space, and for occupiers to assign or sublet buildings with an Energy Performance Certificate (EPC) rating of F or G starting in April 2018.
Meanwhile, corporate occupiers are becoming stronger and more sophisticated in their requirements, increasingly viewing good quality office real estate as fundamental for recruitment, staff retention, productivity and branding, notes Jones Lang LaSalle. Buildings that fail to enable corporate preferences will become obsolete for the larger user.
New technologies will have the ability to change building spec and alter configuration. According to JLL, office real estate should be flexible enough to incorporate evolving technological requirements and must have floor plates capable of adapting to changing and more collaborative configurations. Office product that cannot meet these requirements will trend towards obsolescence.
Alex Edds, Director of Upstream Sustainability Services at Jones Lang LaSalle, concluded, “Occupiers are not immune from these changes. Occupiers looking for an exit strategy may struggle to assign or sublet obsolete stock. Total occupancy costs will rise up the agenda as obsolescence drives the industry to think more about running costs. New or refurbished buildings which offer lower running costs and enable more flexible occupation will be to cheaper to use and offer a more attractive proposition for occupiers while delivering a more sustainable income for the landlord.”
Depending on the degree of obsolescence, Jones Lang LaSalle has identified three main sustainable refurbishment strategies that will protect a building’s asset value: Retention, Rebirth and Reinvention strategies. For more information, download the full report from the firm’s Web site.
