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Build And They … Won't Necessarily Come

Even for those building grade-A offices with the best sustainability labels, there is no guarantee of finding a tenant at rent that justifies the cost of development. That goes double in a world in which tenants are incredibly cautious about committing to long-term leases, not knowing how staff will want to work in future or what the most productive and profitable structure for companies will be. Analysis by Bisnow showed that at the start of this year, seven of the 10 largest buildings scheduled to complete in London this year didn’t have a tenant coming in 2022, while rents have fallen in most London submarkets and tenant incentives have risen to motivate occupiers.

There is another factor to take into account. As companies become more sophisticated in their analysis of the carbon emissions they create, a recent Urban Land Institute report argued they will start to look at the carbon created in the construction of the buildings they occupy, as well as the carbon emitted by running their buildings. With that in mind, companies might start to shy away from new buildings in favour of refurbished assets, which don’t have such a high burden of “embodied carbon” created via construction.

All in all, it is not a no-brainer that a new building will be able to find a tenant in the next few years. Your building lies empty, and with your lender breathing down your neck, you are forced to sell at a discount or even hand over the keys or head into bankruptcy. Your adventure is over.

Don't like where you've ended up? Start over!

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