Sustainable offices and EPC requirements

In 2020 the perception of global investors was overwhelmingly that making offices sustainable would cause an increase in costs, with 96% taking that view.

But that number has dropped to 73% this year, with 17% believing there is no change in overall costs and 10% that there is actually a decrease.

Views of increased costs will reflect the ‘green premium’ tenants pay for net zero assets. JLL and Knight Frank both estimate rental premiums of 10% or more for the most sustainable buildings.

But they will also reflect the advantages tenants derive from sustainable offices, such as reduced energy consumption, and the workforce-related benefits that are increasingly obvious to occupiers.

What is your impression of overall costs for occupiers of environmentally sustainable office buildings?

Energy performance certificates

The UK government has consulted on proposals for stricter minimum energy efficiency standards for business premises in 2027.

There has been no substantial government response on this since the consultation was published in 2021, and some commentators hope that – in view of this delay – there will be an equivalent deferral of the date on which stricter standards might take effect.

But in the absence of any news on this, the real estate industry is still contemplating a 2027 deadline.

We asked UK real estate professionals how much of their portfolio would need upgrading to meet the proposed minimum acceptable EPC requirement of a ‘C’ rating by 2027 and a ‘B’ rating by 2030.

Of the respondents who said the issue was applicable to them, nearly a quarter (23%) will need to upgrade 50% or more of their portfolio.

What percentage of your portfolio will need upgrading to meet the anticipated EPC requirements?

CMS real estate partner Cheryl Gurnham anticipates a number of consequences for the market. “Stricter ratings will have a significant impact on the cost of ensuring that a landlord’s portfolio is compliant. There may also be a greater focus on the limited statutory exemptions and the exemptions register.

“Occupiers should, in theory, see the cost benefits of occupying premises with a better EPC rating, as their energy consumption should be lower. However, as new builds and recently refurbished buildings are more likely to have better EPC ratings, it is often difficult to establish whether better EPCs result in higher rental values, or whether the values are a broader reflection of the state of the premises.

“It’s quite possible that as we near the prospective 2027 deadline there will be shortages of the skills and resources needed for upgrading. And if the owners of non-compliant buildings decide to sell rather than upgrade, we may see a surge of older, unlettable properties hitting the market, which would tend to drag down values.

“If you’re an owner, I think the key thing is to start planning now. Look at the EPC standards your portfolio already meets, and then evaluate your options.”

Technologies to achieve net zero

What technologies are you considering installing in the next three years to help achieve your net zero strategy?

Of the UK investors who answered this question, nearly two-thirds (62%) are considering rooftop solar/ photovoltaic installations, compared with fewer than half of the developers who answered (48%).

The differences are less substantial for electric vehicle charging points – which are more popular with developers – and smart building energy management systems. Well over a third (38%) of UK investors are considering all three technologies.