Recent developments within the commercial real estate (CRE) market are forcing asset holders to rethink their real estate strategy. And to remain agile and attractive to tenants, office property owners are considering whether to refurbish existing stock, or construct new buildings from scratch.
However, this is rarely a straightforward decision. Economic pressures, evolution in tenant demands, developments within ESG requirements, and planning considerations are among the most pressing factors that complicate how CRE property holders are retaining tenants and protecting long-term asset value.
In this article, we analyse the various factors that will influence property owners considering whether to refurbish or rebuild their existing office stock.
Office spaces: where are we in 2026?
Within the office sector, recent years have seen a ‘flight to quality’. This has resulted in property owners with offices in the ‘wrong pitch’ experiencing longer vacancy times and a growing portfolio of ‘stranded assets’.
However, there are factors at play that could increase demand for office space – particularly within central business districts. Tier-1 locations with excellent transport links and access to an educated labour pool still routinely attract tenants and prove to be market resilient.
A major tailwind for office property owners is the growing number of businesses implementing return-to-office (RTO) schemes. In particular, business leaders within finance and law are keen to increase in-office attendance of employees. And research from early 2026 shows that office occupancy for UK workers is at its highest level (opens a new window) since before the Covid-19 pandemic.
Additionally, asset owners are also considering growing requirements from tenants for more ESG friendly spaces. Sustainable buildings can help with businesses looking to save on their operating costs and bolster their reputation as a responsible organisation.
Options for CRE owners
In our previous article, we considered the risks associated (opens a new window) with office asset holders pivoting to the Living Sector and repurposing their office blocks as residential spaces. This is still a viable option that CRE property owners are considering, as well as, retrofitting offices to become hotel spaces.
If office owners want to remain within the industry, they must be cognizant that the fundamental nature of how UK employees work has permanently changed. Demand patterns are shifting rapidly, and the CRE market is evolving in response to a mix of economic pressures, planning considerations, changing work habits, and technological disruption.
Consequently, developers are left questioning whether to retrofit offices or look to initiate a reconstruction project to gain greater yields on their properties. However, to achieve this, it is essential that asset owners get the ‘right pitch’.
The key considerations for refurbing or rebuilding
Below we list the various factors that will need to be considered before CRE asset owners begin either a retrofit or new construction project:
Increased construction costs
The construction industry is currently suffering cost rises from all angles. Commodity prices are increasing, and this is being exacerbated by conflict in the Middle East which has seen fuel prices soar, as well as, supply chain disruption to available materials due to shipping problems. Additionally, from a construction employment point of view, labour prices are rising, which has been compounded by hikes on employers’ NI contributions, too.Satisfying modern client needs
A growing number of businesses within the tech, AI, and data centre industries are expanding their footprint in London. CRE asset holders looking to attract these firms will need to consider their specific requirements, as these can greatly diverge from typical office occupiers. Tech-focused tenants will need specialist infrastructure to support high performance computer output and dedicated power and cooling methods – both of which can be extremely costly to implement. In turn, high quality CRE possessing these extra resources, enables businesses to attract the top talent – accentuating the flight to quality in office spaces.Planning and ESG considerations
Across the UK, but particularly in London, local authorities have displayed a tendency to prefer retrofit projects instead of CRE owners demolishing buildings and rebuilding from scratch. This is primarily due to the perception that carbon emissions are greater in constructing new office blocks – pushing asset owners to restructure, refurbish, or repurpose buildings – instead of constructing from ground up.Construction complexities
Introducing new amenities and a modern office floor space can be problematic when refurbishing existing structures. Modifying the existing layout through structural interventions and/or integrating new mechanical and electrical systems can be challenging, and if designs are flawed, rebuilds and redesigns can bring significant costs. Insurers are very careful around insuring changes to a property without a comprehensive understanding of developers’ plans. As such, early engagement with insurance professionals is crucial.Changes in tenants’ demands
Across the UK, tenant expectations are evolving – forcing developers to consider how refurbishment or reconstruction will increase the appeal of their office block. Businesses often demand ready-made solutions they can quickly and seamlessly occupy, with desirable amenities, such as showers, cycle spaces, gyms, and coffee shops. Particularly for companies that operate in industries with unpredictable growth, such as tech startups, flexible or short terms leases are also increasing in popularity.Social impact
No matter the project, local authorities and councils are keen for developments to have a lasting social impact on the surrounding area. For office blocks, there are expectations that projects provide space for a mix of occupiers and community use facilities, whilst contributing to public spaces and respecting conservation sites and historic areas.
Continuing the conversation
Want to dive deeper into this debate? Join us on 22 April 2026 at our Office Breakfast Seminar, ‘What is next for Office Spaces?’
Industry experts from Lockton, Castleforge Partners, Hollis, British Land, and CBREIM will draw on their expertise to discuss the forces reshaping today’s office investment landscape and what this means for your strategy.
Register your interest for ‘What is next for Office Spaces’, here (opens a new window).
For further information, please contact a member of our Real Estate team (opens a new window).
