Across the UK, owners and developers of subprime office buildings face a paradox: they are ready to invest in meaningful upgrades, but the system seems designed to penalise rather than support them. Outdated tax structures and regulatory barriers create financial headwinds that make it harder to retrofit ageing stock – even when the appetite is there.
If we are serious about cutting carbon, revitalising urban centres, and making better use of existing buildings, then retrofitting substandard offices must be part of the solution. That means creating a system that rewards, rather than punishes, investment.
At the top of the list is business rates. The moment developers start work to improve a building – even one that is obsolete or commercially unviable – they are often hit with full rates liability. Empty property relief generally only lasts three months, after which most owners must pay full business rates, regardless of whether the space generates income. This discourages proactive refurbishment and forces many to delay or abandon projects that could otherwise deliver major environmental and economic returns.
Bill Reed, a developer of several small office buildings and director of Reedspace Ltd, put it bluntly:
“Paying business rates for empty buildings just shouldn’t happen. You’re obviously going to do your best to rent something out. But if you’ve got to pay the bulk of this when it’s vacant, that’s a huge disincentive to buy a building that’s going to be a struggle to let. It can kill a project before you’ve even got moving.”
One solution could be to grant extended empty property relief for subprime office redevelopments, particularly in areas where there is clear local demand and a strategic need for retrofit activity. By aligning incentives with outcomes, government can unlock stalled projects, support net zero targets and breathe new life into underperforming assets.
But the challenge goes beyond vacancy. Even when buildings are occupied or actively marketed, there is a fundamental mismatch between their assessed rateable value and the realities of the local market. This disconnect distorts decision-making, placing undue pressure on owners, investors and potential occupiers. As Reed continued:
“In my experience, the rateable value doesn’t reflect what’s actually happening in the market. But you’re still expected to pay, even when there’s no income. Unless you feel confident you’ll let the space immediately, you’re not going to take the risk.”
This disconnect places a strain on secondary and regional markets, where letting risk is higher – and where developers and occupiers are often more price-sensitive. Alex Smith, an architect and partner at Sheppard Robson, put it this way:
“If you’re trying to attract occupiers into a less-than-ideal building, you’ve got to be flexible and offer a business rate holidays, for example. Otherwise, how do you compete with major cities offering better amenity and infrastructure? Once a building leaves that local market, it’s not coming back. The financials just don’t support building new stock there.”
Tax reform and targeted incentives must also play a central role in unlocking retrofit activity. A range of policy tools could help drive meaningful upgrades – among them, enhanced capital allowances, VAT relief on retrofit works and SDLT exemptions for transactions that lead to repositioning underused office assets.
A “green retrofit credit” could provide a powerful incentive for landlords to invest in sustainable, low-carbon improvements – helping to shift retrofit from aspiration to action.
Tax reform alone will not move the dial. The lending environment also presents real challenges – not just for developers, but for lenders. Funding vacant buildings often carries a disproportionately high capital cost, making it significantly more expensive than financing income-generating assets. The way current regulations treat this risk can effectively double the cost of lending, creating barriers even when there is clear appetite to back retrofit projects.
As one representative of a private bank put it:
“From a lender’s perspective, there’s definitely appetite to fund in this space – but regulation makes it difficult. Funding a vacant building is broadly twice as expensive, from a capital carry perspective, as one with tenants. That’s a big hurdle for traditional high street banks. There are other lenders, but the pricing becomes an issue. Unless regulation evolves, that risk premium holds the market back.”
The message is clear: we need to stop punishing vacancy and start rewarding reinvention. The cost of holding and improving secondary office stock must be aligned with its strategic importance – to local economies, climate commitments and the health of the wider real estate market.
Retrofit should be viable by design, not in spite of it. That will require bold policy action, cross-sector collaboration and a shared belief in the long-term value of adapting and reusing what we already have.
In an eight-part weekly series, the London real estate team will share insights drawn from a roundtable attended by a group of cross-practice industry experts to discuss the issues posed by subprime or so-called secondary offices with a view to proposing innovative, workable solutions. Each article focuses on a key “call for action” – a targeted idea to support those grappling with the realities of an evolving office market. Readers will hear directly from discussion participants, with selected quotes and real-life examples that bring to life the creative thinking and grounded advice contributors shared. To receive future updates on this topic, please email [email protected].