Around $1 trn (€0.94 trn) of capital is needed to revitalise global office space at risk of obsolescence as part of shaping a more resilient built environment, according to new research from JLL.
JLL finds that of the 776 million m2 of existing office space across 66 markets globally, about half of that space, or 322-425 million m2, is likely to require substantial investment to remain viable in the near term – an investment of approximately $933 bn-$1.2 trn in spending.
Proactive engagement to retrofit and update existing assets will be key to unlocking opportunities for value creation through strategic investment and adaptation, particularly in the US and Europe, where 78% of office product and 83% of necessary capex is found.
'The commercial real estate landscape is at a turning point as property owners and cities look to establish long-term viability of existing buildings and districts, in the face of evolving experiential and spatial preferences, increasing regulatory pressures, climate risk and changes in real estate demand,' said Cynthia Kantor, CEO, project & development services, at JLL. 'By proactively assessing and addressing outdated and at-risk buildings, owners can unlock significant value, create a more sustainable, resilient built environment and drive future returns.'
According to the data, as much as 80% of Europe’s office market is more than 10 years old. Across Europe, roughly 109.6 million m2 of office stock is likely to need significant near-term investment to meet new tenant preferences and regulatory standards based on age of inventory, with 8.5% of this total found in London.
London is one of the cities with the highest risk of large-scale regulatory stranding with its at-risk product under moderate scenario being 9.4 million m2 against an estimated $3,519/m2. In London, the new supply built since 2020 and space under construction is 14.5% of the total inventory compared with a 9.5% total vacancy. JLL has estimated that London's aggregate retrofit costs are between $21.4 bn and $43.6 bn.
The built environment accounts for up to 42% of global emissions annually, driving pressure from the public and private sector onto building owners to decarbonize properties.
Even with the rate of building emissions beginning to flatline to meet net-zero targets, the report concludes that the scale of retrofitting will need to accelerate to address the more than 86 million m2 of office product in need of near-term capex across the top eight markets for regulatory stranding risk due to tightening compliance standards alone.
