Commercial development is concerned with optimising the capital value of property assets. Development is a high-risk business, involving a large investments, long project durations and a highly cyclical pattern of supply and demand. Total redevelopment is usually the preferred option in a rising market, as this makes the best use of a site and provides a product tailored to market expectations. However, for some projects, either timing or site constraints such as historic building status or the existing planning consent can mean that a refurbishment provides a better balance of risk and return.

Even in an office market as uncertain as the present one, tenants still need space. In responding to this, refurbishment projects have several advantages over new build.These include:

• Speed to market Simplified planning, reduced demolition and the ability to reuse elements of the existing building can provide considerable programme advantages.
• Cash flow and tenant retention Many city-centre schemes mix office, retail and sometimes residential uses, each with different lease terms. Refurbishment options often allow retail to be retained while upper floor space is reconfigured.
• Cost Avoidance of total demolition and the reconstruction of major elements of the building fabric should result in capital cost savings of at least 20%, even on major projects.
• Retention of the value drivers of the original building. These may include permitted development density and massing, parking allocations and, with older buildings, style and character. Refurbishment consents can also be obtained without an additional section 106 requirement for housing contributions and the like.
• Sustainability The reuse of the building fabric and improvements to the building’s performance in use mean that the overall environmental impact of a refurbishment is likely to be lower than for a new-build.

High-profile refurbishment schemes in London, such as 125 Broad Street and 55 Baker Street, as well as projects in all major cities, show how reuse options continue to make financial sense.

In summary, the timing of lease expiries and the evolving needs of tenants mean that there will always be a demand for attractive, efficient space, even in a downturn.With the inroduction of energy performance certificates from 2008 onwards, occupiers are expected to become even more aware of their energy consumption, prompting further investment in existing buildings to maintain their value.

Refurbishment options involve uncertainty but overall carry a smaller development risk, which can be mitigated further by varying the scope of the refurbishment investment in response to market demand. For developers, consultants and contractors with the skills, uncertain market conditions will create further opportunities to deliver value-adding solutions.

This cost model is concerned with large projects that involve the reconfiguration and extension of floorplates and services to provide the highest standard of accommodation. Many of the issues raised, however, also apply to smaller-scale refurbishments.