Poor quality secondary office space accounts for 70% of total UK stock

DTZ research reveals Grade C stock greatly exceeds that of Grade A and Grade B space

Article posted: 19 Dec 2011

Poor quality secondary office space accounts for almost 70% (721m sq ft) of total office space in the UK, according to new research by DTZ. This report considers quality of office space, defined in terms of grade A (prime), B (good quality secondary) and C (poor quality secondary). It reveals significant variations in the proportion of grade C space across the UK office market.

The highest proportion of grade C stock is in the minor UK markets (85%) where low development activity has resulted in only a small amount of modern stock. London outside the City & Fringes also has a high proportion (68%) due to low development activity in most locations except the West End and West London. In central London, where the value of land has justified a more intense level of development and superior build quality, grade C space accounts for more than half of all stock (54%). Grade C space in most markets exceeds the total amount of grade A and B space.

Grades A and B account for around 9% and 22% of UK stock respectively. Outside the main office markets the figures drop to less than 4% for grade A and 11% for grade B.

Hans Vrensen, Global Head of Research at DTZ said: “This analysis is an initial step towards sizing the non-prime market. This is important given that non-prime property is collateral for much of the circa £300bn real estate debt in the UK. The work-out of loans against non-prime property still has a long way to go, as we saw in the lenders survey we conducted as part of this year’s Money into Property research. Over half the lenders surveyed believed that the work-out for non-prime assets had yet to start.”

Martin Davis, Head of UK Research at DTZ added: “Our analysis suggests that over two-thirds of the UK’s office stock can be classified as poor quality secondary. This is based on a bottom up assessment of nearly 3,000 buildings covering 164m sq ft in Birmingham, London City & fringes and Reading as representative markets for the UK as a whole. This analysis was further extended to the rest of the UK by using a variety of sources and by assuming a certain relationship between quality and age of office buildings in these other markets.

“Beyond London the prospects for alternative uses are less easy to implement, certainly for residential development while the market is weak. This creates a problem for grade C owners in terms of recycling unwanted stock - especially since grade C availability is likely to be higher in less developed markets outside of London.”

A full copy of the report is available at: http://www.dtz.com/UK/Media_Centre/Latest_news/Poor+quality+secondary+office+floorspace+accounts+for+70+percent+of+total+UK+stock

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Posted by Jo