The government’s commitment to achieving a ‘net-zero’ economy has put a strong focus on improving the energy performance of buildings across the UK. One crucial tool in assessing energy efficiency is the Energy Performance Certificate (EPC), which rates buildings from A (highly efficient) to G (inefficient). To meet this objective, Minimum Energy Efficiency Standards (MEES) were introduced in April 2018, with new regulations announced in April 2023.
As of 1st April 2023, it is illegal for landlords in England and Wales to continue renting out commercial properties with an EPC rating of F or G unless they have obtained a valid exemption. These regulations now require landlords to develop plans to elevate their properties to meet the necessary standards.
Furthermore, it’s important to note that future legislation is likely to become even more stringent. Following the government’s 2019 consultation on setting a regulatory target for the Non-Domestic Private Rented Sector Regulations, which proposed achieving an EPC rating of B by 2030, there has been significant support for this goal. The government’s 2020 Energy White Paper confirmed this trajectory, meaning that landlords will need to take steps to enhancing the energy efficiency of their properties.
Impact on the property market
Despite concerns about the energy crisis, the property market in London continues to show promise. The development pipeline is robust, with a record number of London office refurbishments reported in Deloitte’s summer 2023 London Office Crane Survey.
The demand for high-quality workspaces is on the rise, driven by the need to attract and retain talent. In May 2023, there were 37 refurbishment projects covering 3.2 million m2 underway in London representing the highest number and volume of refurbishments since Deloitte began tracking such projects in 2005.
This increase in projects and refurbishments reflects developers’ desire to stay relevant and adapt to evolving market trends.
Refurbishing assets is a top priority for investors
Furthermore, a survey by Handelsbanken of professional landlords conducted just before the new rules came into force found that meeting EPC ratings and refurbishing assets is a top priority for investors. At the time of the report (June 2022), a significant number of respondents expressed optimism about meeting the new EPC standards, with over half planning to invest £100,000 or more across their assets in 2023. For instance, this trend is indicated by London-centric real estate investment trusts (REITs) including Landsec (LAND), Great Portland Estates (GPE), Workspace (WKP), and Helical (HLCL) having greatly invested in the energy efficiency of its existing building stock, to prevent them from becoming ‘stranded assets’ ahead of the tightened regulations.
Evidently, the outlook for the commercial property market is positive. However, what should landlords consider when upgrading their assets?
Striving for excellent, not just compliance
While landlords must elevate their property’s EPC rating above E to meet regulatory requirements, remaining competitive in the market requires going beyond the minimum standard. Research by Deloitte indicates that commercial landlords are under pressure to offer premium, energy-efficient spaces that align with modern standards – something that is achievable through retrofitting.
Improving a building’s energy efficiency is essential in responding to rising energy costs. Retrofitting a property to a high standard can enhance rental yields, extend tenancy periods, and increase overall occupant satisfaction.
Retrofitting: the answer to enhancing building stock
Retrofitting is a crucial process to bring older buildings up to modern standards. Improvements in insulation and air tightness ensure better temperature control, while upgrades to doors and windows minimise air leaks, optimising indoor conditions.
Upgrading insulation, windows, lighting systems, HVAC (heating, ventilation, and air conditioning) systems, and implementing energy management systems can lead to long-term cost savings and increased profitability which is highly appealing to tenants looking for energy-efficient spaces.
Moreover, improved indoor conditions result in increased occupant comfort and productivity, supporting tenant satisfaction and well-being.
Retrofitting is key to future-proofing
Retrofitting also future-proofs your building, ensuring compliance with evolving building codes, energy efficiency standards, and environmental regulations. By retrofitting, owners can adapt to future needs and stay ahead in an evolving market while avoiding legal issues related to non-compliance.
In summary, retrofitting offers multiple benefits to landlords, including energy cost savings, environmental sustainability, increased property value, improved occupant comfort, and future-proofing of assets. To meet regulations, stand out in a competitive market, and enhance property value, retrofitting is a vital consideration for asset owners.
Pexhurst can help you meet your refurbishment goals
Pexhurst is an award winning fit-out and refurbishment contractor with a breadth of experience from turnkey office fit-outs to multi-million pound warehouse and logistics refurbishments across a range of commercial, industrial and specialist sector clients. With over four decades of experience, we possess the skills to align your brief with regulatory requirements.
Get in touch today to inquire about how Pexhurst can help you with your fit-out project.
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