Office investment - ESG comes at a cost

How are ESG principles shaping the
demand for office space? Are new offices necessarily greener? Can renovation also meet ESG

Whether it is AstraZeneca moving to a new 37,000 sqft headquarters at King's Cross Central, Google’s acquisition of 408,000 sqft of offices at Central St Giles in Paddington or Omnicom’s acquisition of the 450,000 sqft Bankside buildings, recent activity suggests the office market is not dead. 

While London saw its highest quarter of occupier activity since before the pandemic at the end of 2021, according to Gerald Eve, this trend is certainly not exclusive to the capital. There was NatWest’s purchase of 368,319 sqft at 1 Hardman Boulevard in Manchester, the biggest regional office deal of 2021 until Segro broke that record a few hours later with its 958,000 sqft purchase of an office portfolio in Slough.

But there are patterns to discern behind the headlines with this activity primarily being led by a gravitation towards best-in-class space and increased demand for buildings with strong ESG credentials. When looking at activity in the sub-prime office market, where ESG performance is less pronounced, the picture is different.

“Our data shows that net absorption in the best-quality, 5-star buildings has been positive throughout the pandemic, with all the demand losses coming in buildings rated 4-star or below,” says Mark Stansfield, Head of UK Analytics at CoStar. “Firms are seeking such space to attract staff, welcome clients and meet growing ESG requirements, even if many take less space overall as home working becomes more entrenched.”

Savills backs up this point in its December 2021 UK Regional Office Investment Market Watch report: “The demand in the market is polarised with prime opportunities which can satisfy ESG criteria and provide medium-long term income being actively targeted.”

Firms rush to snap up a dwindling pool of
high-quality, highly sustainable space.

One thing is for sure – it cannot just be about new builds.


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.


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