Office properties that have been retrofitting to a higher efficiency standard are able to generate 18% more rent on average relative to prime, according to research by Knight Frank.
On average, second-hand offices in London with an EPC rating of C or lower are currently yielding 35% less rent than prime rentals. This has widened the gap from 27% recorded in 2020.
In its report, entitled The Business Case for Action, Knight Frank analysed 130 office retrofit projects undertaken in England and Wales between January 2020 and July 2024.
For all of these, EPC ratings were improved from C to B and above. On average, an 18% uplift of rental income was generated for these properties.
Knight Frank noted this uplift varied by location, level of intervention and other market specific factors.
The research also found that office spaces with higher sustainability ratings are likely to be leased out for longer with a reduction in void periods.
In London, the analysed properties with the highest BREEAM classification or an EPC rating of A were pre-let on average 5.6 months ahead of completion, with an average lease length of 8.5 years.
For projects that achieved a BREEAM ‘Very Good’ or EPC B, the average lease length was more than a year shorter at 7.4 years, with pre-letting achieved on average 2.3 months ahead of completion.
Flora Harley, head of ESG research at Knight Frank, flagged that EPC reforms mean 75% of office spaces are set to fall below par.
“The decision on how to approach the retrofit and refurbish challenge will be determined by a wider variety of asset-level and market factors, but through this detailed analysis of recent projects we have been able to provide an indication of the relative rental uplift achievable, as well as increase in lease lengths and reduction in voids, all of which will underpin asset values,” said Flora.
“Cost and viability will be a challenge for some, but with the gap between the best workplaces and the rest continuing to widen, the cost of inaction is growing.”
