Developers looking to get the most out of their stock in difficult economic conditions are increasingly turning to refurbishment rather than redevelopment. Nigel Addy and Peter McCallum of Davis Langdon, an Aecom company, look at the cost implications
There is a compelling argument as to why a developer would elect to build a new building. A new build provides a contemporary design that accommodates the latest technology in terms of infrastructure and sustainability. Ultimxately it also commands a higher rent when compared with a refurbished building. So why is there so much excitement surrounding the refurbishment of existing offices?
Unsurprisingly, the key to this is that the UK and Europe are in the grip of one of the worst ever economic downturns, leading to difficulties for developers to achieve funding and a disinclination on the part of potential tenants to look very far into the future. This means developers are focusing on getting the most from their existing office stock.
The refurbishment and reinvention of existing offices offers a number of benefits when compared with complete redevelopment. Refurbishment enables a developer to achieve the following:
Not all of the existing office stock is suitable for refurbishment and there are certain factors that constrain and determine both the level and suitability of a building for refurbishment.
Modern working practices use technologies that are revolutionising the way business is done. This has consequently led the workforce to be more agile and empowered as to how, when and where they work - the traditional link between the individual and the workstation has been broken.
Refurbishment offers the user the opportunity to adapt existing office space to match the changing ways in which the workforce operates. A variety of individual, team and community support spaces can be provided, targeted at tenants that are trying to move away from institutional-looking space.
There is a growing ethical awareness in the industry that office space is expected to accommodate changing social and economic requirements. The design of successful buildings takes into account what happens after they are built and what makes it possible for them to mature and develop.
A carefully thought through refurbishment can transform a tired, uneconomical, inefficient building into a desirable, vibrant, efficient and profitable asset that supports new ways of working and incorporates modern sustainable technology.
The key to adding value through refurbishment is to understand the factors that will attract tenants. These include flexibility, good floor-to-ceiling heights (more than 2.5m), column-free spaces, the maximising of usable space, welcoming entrances, natural light and the right environment with adequate cooling.
The cost-versus-value equation is the primary driver for decision making during the design stage of a refurbishment project. The creation of more valuable space as well as additional space is a primary consideration when determining the extent of any refurbishment.
Some examples of the sort of intervention to the existing building that can create more valuable space include:
The creation of a generous floor-to-ceiling height is a key consideration for a refurbishment. Relatively small floor voids are acceptable if the floor-to-ceiling heights are maximised. With the advance in technologies, the need for larger floor voids is not as necessary - however, this does need to be considered against the tenant market that is being targeted.
The choice of the service strategy also needs to be carefully thought through. Many older buildings do not have the floor-to-floor heights to accommodate a four-pipe fan coil system and a suspended ceiling, while simultaneously maintaining an optimal floor-to-ceiling height.
The use of chilled beams, chilled ceilings and cooling mats are some of the ways to create the right environment whilst maintaining floor to ceiling heights. The use of displacement air systems in existing buildings is popular and enables users to open windows and provide natural ventilation during the summer months. This choice will be largely dependent on the ability to have a suitable floor void to deliver the air to the space.
The complete refurbishment of a building provides an opportunity to review the services strategy. The ability to move major plant from, say, the roof to basement can release area which can be turned into valuable usable space. The freeing up of area on a roof can enable the potential to build additional floors.
The creation of a welcoming entrance should be a major consideration in any refurbishment of any scale. The first impression of the building is the entrance and a high quality entrance will enhance the marketability of the building. Examples of how entrance areas can be altered to create a more inviting environment include:
The refurbishment of common areas, such as toilets and lift lobbies, is also essential to a successful refurbishment. The extent of the refurbishment can range from a refresh of finishes, which can be done relatively cheaply, to a full reconfiguration of the toilet areas, including replacing sanitaryware, finishes and services.
Refurbishment also allows the opportunity to provide additional facilities such as bike stores, showers and larger bin stores to achieve BREEAM points. This is an important consideration with a major refurbishment. BREEAM “Excellent” can be achieved in a refurbished building and this increases the marketability of the existing asset.
The extent and the success of a refurbishment is dependent on the base building. The base building provides the fundamental constraints to the level and nature of the refurbishment. Some of the elements of the base building are fixed and if not ideal will require to be resolved by design solution.
Examples of possible issues to be considered are:
It is generally considered that the retention of an existing building is considered more sustainable as it is using existing building stock on 100% previously developed land.
As part of a new building design process, measures to incorporate sustainable features go hand in hand. With refurbishments the process is a little more challenging.
Sustainable features for consideration in refurbishment schemes include:
For buildings that offer limited potential for sustained uplift in value, a small refurbishment might provide an opportunity to enhance rental income ahead of a comprehensive redevelopment. A more extensive refurbishment will close off the opportunity for redevelopment for an extended period. On the basis of this, a developer needs to consider the available opportunities, which can be defined as follows:
The above indicative costs of refurbishment are driven by the design and condition of the building, constraints on the design and construction solutions adopted, as well as by the scope of works required to meet the project objectives. All projects are unique, and as a result, cost ranges are much broader than for new build.
Furthermore, substantial allowances for additional costs associated with design development and risk should ideally be retained in project budgets until a late stage in the programme, to take into account the potential for further changes in scope based on better knowledge of the existing building. These figures exclude any occupier enhancements and furniture installation.
*includes category A fit-out. Costs current at 2Q2012 for central London location.
The PDF attached includes a series of cost models covering the different ranges of refurbishment of a fictional central London office block. The varying levels of structural intervention are covered under options included with the cost models.
The cost models are based on a 20,000m2 (gross internal area) building comprising ground plus 10 floors. The net internal area is 13,000m2. The cost model assumes the presence of an atrium. An option is included to alter the atrium to gain office area. Additionally, an option is included to add office area through the addition of a floor.
Rates are current in second quarter 2012 based on a central London location. Furniture and fittings, professional fees and VAT are excluded.
The cost model is based on a central London location. For other locations, the costs may be adjusted by the following indicative multiplying factors:
The authors would like to thank Paul Allen of Davis Langdon, an Aecom Company, Nicola Gillen of DEGW and Ian Woodman of Aecom for their assistance in the preparation of this article.