Former offices could become new hotels, as data from CBRE reveals that since 2022, around 2.2 million sq ft of secondary office space in Central London has traded or is under offer for alternative uses.
CBRE revealed that the proposed alternative uses for these assets range from life sciences, residential, student accommodation and hotels. Two buildings which have been sold or are under offer for use as hotels and serviced apartments are Nobel House, Millbank and 89 Eccleston Square, both secondary government buildings located in Victoria.
The real estate advisor noted that in the five-year period prior to the global financial crisis, 82% of total central London investment volumes was office. However, in the past five years, this has fallen to 62%, with 38% of investment deployed into non-office uses.
Why it matters
The trend of decreasing office investment indicates a shift in investor sentiment, especially as ESG regulations put in jeopardy the viability of a large majority office space. Post-pandemic working practices apply added pressure. As 2030 – the deadline for all commercial properties to be classified at least EPC B - draws closer, we will no doubt see more and more investors with cash to spare, snap up at-risk office space for conversion to alternative uses.
What they said
Ed Bradley, head of London office Investment at CBRE said: “Occupational and investor demand remains extremely high for best-in-class offices in prime locations. Secondary office space and locations, on the other hand, are lagging. The capex requirements to upgrade these assets can be prohibitively high so increasingly this space is being repurposed.
"We have seen several examples of where alternative use investors/developers are out-bidding traditional office investors by 10-20%. There will be greater demand for the very best offices, but investors are taking an opportunistic view on the value that can be achieved from alternative uses.”