London’s commercial property sector is suffocating
A combination of environmental regulations and falling office attendance means commercial property is struggling and the Spring Statement was a missed opportunity to turn it around, says Dan Drogman
The UK’s commercial property sector is being strangled from all angles, and this year’s Spring Statement was a missed opportunity to relieve that pressure.
Let’s start with the ever-changing landscape that we in the industry face.
Firstly, there are the energy upgrades. With a looming interim 2027 deadline for landlords to upgrade their buildings to meet higher energy standards, the cost of retrofitting remains a major barrier. Over three quarters of London’s office buildings are currently below the minimum legislative standard of EPC C, and will need to be upgraded by 2030 to meet EPC B. That means that an equivalent of 15m sq ft per annum will need upgrading, at an extortionate cost. But retrofitting is good for business. It helps to attract and retain tenants, it avoids assets being stranded and it can future proof a building against future regulations.
From the other direction, businesses are adapting to hybrid working, and landlords are facing higher borrowing costs. A recent Centre for Cities study found that while Londoners are now spending over half their working week in the office, when it comes to office attendance the capital is behind other major cities such as Paris, New York, Singapore and Sydney. These are tricky problems to navigate. Together, they’re a cocktail of pressure squeezing the life out of the sector.
The importance of this sector shouldn’t be overlooked. The industry contributes billions annually to GDP and tax revenues, making it vital not just for net zero ambitions but for the UK’s broader economic recovery too.
So, what can be done?
Targeted Support
Most people in the sector acknowledge and support that carbon emissions are a huge issue for us. Not only do we accept that, it’s also a good business move because better efficiency means cheaper energy bills.
However, we’re seeing that tax relief alone is not enough to unlock large-scale retrofit projects. Many landlords still face tough financial decisions on whether to upgrade, repurpose, or sell assets that no longer meet tenant expectations or regulatory requirements, and assets face being devalued as a result.
For London, where office space demand is evolving, government incentives must go further.
Retrofitting is not just about compliance; it’s about repositioning buildings to remain competitive in an international market increasingly defined by high-quality, tech-enabled, sustainable workspaces.
In our globalised economy, employees demand more from their workplace, so a more ambitious approach, such as targeted retrofit grants or green lending schemes, would go further in making large-scale improvements viable.
Business rates – a barrier to progress
As it stands, once you have completed the upgrade, you’re out of the frying pan and into the fire.
Landlords investing in energy-efficient upgrades are often penalised rather than rewarded.
This outdated system is fundamentally at odds with the UK’s net zero ambitions and must be overhauled to incentivise sustainability.
London’s commercial landlords are already contending with rising operational costs, evolving workplace trends, and tighter ESG requirements.
Business rates reform should be at the heart of the government’s strategy to unlock investment in the sector, allowing landlords to upgrade properties without the fear of an immediate tax hike.
We risk a wave of stranded assets
Without meaningful reform, London risks falling behind global competitors.
The UK’s slow policy response could leave a significant portion of its office stock stranded and unsuitable for modern businesses. This makes them increasingly difficult to lease or sell.
The capital’s commercial market is already experiencing a flight to quality, with prime office spaces attracting tenants while secondary stock struggles. If outdated buildings are left behind, the knock-on effect will be severe resulting in rising vacancy rates, declining investment and weakened economic activity in one of the world’s leading financial centres.
The government has the power to future-proof London’s spaces that support the UK economy and sustainability goals. But to do so, it must take urgent action to remove the financial and regulatory barriers holding the sector back.
As it stands, the Spring Statement has done little to reassure landlords and developers that the government truly understands the scale of the challenge.
It must now listen to the sector and, at what will be a pivotal Autumn Budget later this year, deliver the policies that will drive meaningful change.
Dan Drogman is CEO at UK based tech company Smart Spaces