The market experiences a shift towards remote work, prompting investors to invest £2bn in the conversion of unwanted London offices for innovative purposes.

According to the Financial Times, real estate adviser CBRE said that investors have acquired central London offices amounting to £1.3bn since the beginning of last year, with intentions to convert them for new purposes. Additionally, there are ongoing deals worth another £700mn in progress.

As the property sector endeavours to adapt to the evolving landscape of hybrid working, these deals encompass 2.2 million square feet and account for nearly 10 per cent of new investments.

“It is a significant proportion of London investment volumes in today’s market,” said Ed Bradley, head of London office investment at CBRE, reported FT. 

He further mentioned that the level of investment in converting secondary offices for alternative purposes is remarkably unprecedented in scale.

Despite a significant slowdown in commercial real estate investment since the previous autumn, certain investors are continuing to place their bets on projects aimed at converting offices into alternative uses such as student accommodation, hotels, and laboratories.

“We have seen several examples of where alternative use investors and developers are outbidding traditional office investors by 10 to 20 per cent,” said Bradley.

In September, the GIC, a sovereign wealth fund from Singapore, made an agreement to invest in the "Ugly Brown Building," which is the former headquarters of Ted Baker located near St Pancras station. The intended development for this site involves the creation of laboratory facilities, taking advantage of its strategic proximity to prominent universities and hospitals.

There are plans to transform additional properties, including Nobel House located near the Houses of Parliament on Millbank, into hotels and serviced apartments. The demand for laboratories, hotels, and student housing has been fuelled by the limited availability of research space and the resurgence in the number of international students and visitors following the pandemic. 

These market changes are also influenced by increasing interest rates aimed at controlling inflation and a "mini" Budget implemented last autumn, which further escalated borrowing costs and caused unease among investors.

Outmoded office spaces frequently require substantial financial investments for renovations in order to attract tenants or adapt them for alternative purposes, which diminishes their appeal as investment opportunities. 

CoStar data revealed that investment in central London offices during the first quarter of the year was approximately 50% of the long-term average. However, there has been an improvement in dealmaking levels compared to the record lows observed in the final quarter of 2022, spanning a span of 20 years.