Build: Perspective – Key Takeaways

• Geopolitical impact remains to be seen

It remains too early to accurately assess the impact of the Iran conflict on build costs and programme timescales. Early evidence suggests that some materials heavily impacted by the rise in fossil fuel costs should expect to see price rises in the short term.

• Ripple effect could increase viability

One possible outcome of the current situation could be that contractors absorb price rises and price work to win tenders. This could, in time, reduce build costs. Also, a reduction in development starts could see vacancy rates move inwards, driving rents forward. Both scenarios would improve development viability.

• The challenge of matching supply with prime office demand

Across Central London and regional markets, occupier demand is being driven by the prime segment. In regional markets, this is largely being satisfied through refurbishments, whereas in Central London, we could see occupiers consider well-connected locations outside of the core, such as The Docklands.

• I&L sector looks to refurbishment

With speculative development pipelines reduced by almost two-thirds from a 2022 peak, many stakeholders are looking to refurbish older assets to satisfy demand from occupiers for grade A units. Savills research has found that units with an EPC of A+/A can command a rental premium of 55% over lower EPC grade assets.

• Mid-tech plays a role in the science sector

Cost-conscious science occupiers are turning to ‘mid-tech’ units, which offer greater flexibility and lower upfront costs when compared to more advanced wet lab facilities. Oxfordshire has seen particular growth, with over 900,000 sq ft of mid-tech space transacted.

• Living sector continues to bridge viability gap

Despite strong investor demand, UK living development is being constrained by rising construction and financing costs, regulatory complexity and planning delays, depressing BtR starts and forcing greater focus on design efficiency, alternative formats and policy reform to restore viability.

_{Read the articles within Savills Build: Perspective report below}