European Office Sector Outlook 2024




Assessing office space through a grading system, which spans from A to C, has become an acceptable method in the real estate sector. This grading can impact both the value of a building and the probable rental rate an occupant might pay. Factors affecting office grades typically involve the building's age, location, and construction quality. More recently we have seen the growth in various rating systems to cover environmental performance, connectivity and wellness. Despite this, there isn't a universally accepted industry definition for these grades, and certain factors influencing the grading can be subjective. Grade A space generally denotes top-tier office spaces, either newly constructed or recently renovated. The definition of Grade A can differ between markets, however, meaning that a Grade A office building in London might differ significantly from a Grade A building in Warsaw.

C&W’s XSF analysis reveals productivity is a primary concern for numerous leaders, and in the past, employee office presence was considered crucial to maintaining productivity. Nevertheless, recent analysis indicates that merely being present in the office does not in and of itself ensure productivity. In reality, other workplace factors like the ability to concentrate, minimise interruptions, and sustain energy levels significantly influence productivity. The adoption of activity-based working (ABW) and biophilic designs is on the rise, and both are now recognised as factors contributing to enhanced productivity and employee morale. ABW ensures workspaces are designed to support specific tasks, while biophilic design refers to incorporating natural features into the office design. A building’s interior design has a considerable influence on employee’s health and well-being as we tend to typically spend approximately 90% of our time indoors⁵. Multiple studies, including research conducted by MSCI⁶, have demonstrated the emergence of a premium for buildings with sustainability ratings compared to those that have not yet obtained such ratings. On average the ‘green’ premium ranges between 25-35%.

Looking ahead a number of years, sustainability will be the standard, not the exception. Tenants will be less willing to pay extra for green buildings as they become increasingly common. Hence the real estate sector is looking to exploit the green premiums now by seeking out value-add opportunities, finding “brown” buildings and upgrading the sustainability to take advantage of the premiums to secure longer-term rental values. Furthermore, due to the increasing legislation, sustainability will be expected. The UK Minimum Energy Efficiency Standards (MEES)⁷ from April 2023 state that it is unlawful for landlords to let a building with an EPC under E. There is a whitepaper under consideration that will raise the required EPC level to a C by 2027 and a B by 2030. In the Netherlands, a building must currently meet a rating of C or above, with aspirations to raise it to an A rating by 2030. We can expect increased regulation in the sector in a growing number of markets in the drive to cut carbon emissions and improve sustainability credentials alongside other asset classes.



Made with FlippingBook Online newsletter creator