In the rapidly evolving commercial real estate sector, a pivotal concern for landlords is the adherence to Energy Performance Certificate (EPC) regulations. As of June 25, 2024, there has been a noteworthy shift in both awareness and proactive measures among commercial landlords. Previously, only 80% of these landlords were cognisant of EPC requirements, but a recent survey by Blick Rothenberg has revealed this figure has now reached 100%. This heightened awareness underscores a broader recognition of the critical importance of energy efficiency in commercial properties.
EPC regulations stipulate that all rented properties must achieve an energy performance certificate rating of E or above. This mandate is not merely a bureaucratic formality but reflects a growing appreciation of the environmental and economic benefits that energy-efficient buildings offer. The survey indicates that all commercial landlords now either have a plan in place to meet these requirements or have already implemented the necessary changes. This is a significant improvement from the previous year when only 70% had such plans. This proactive stance is driven by the pressing deadlines and evolving perceptions of property value, which increasingly consider the environmental impact throughout a property’s lifecycle.
One of the substantial challenges faced by commercial landlords has been the financial implications of energy efficiency enhancements. Last year, 80% were unaware of these costs, but this figure has dramatically decreased to just 10% in the latest survey. This change signifies that landlords are becoming not only more informed about the regulations but are also taking steps to understand and plan for the financial investments required. Heather Powell, Head of Property and Construction at Blick Rothenberg, emphasises that this newfound awareness is crucial for maintaining property value and meeting regulatory demands.
In the commercial property market, energy efficiency is a decisive factor. Properties with poor energy efficiency ratings can become virtually impossible to lease, impacting portfolio values and leading to financial losses for investors. Conversely, landlords who invest in improving their properties’ energy efficiency can benefit from tax deductions, such as structural building allowances or other capital allowances. This economic incentive is a significant driver behind the recent surge in compliance and proactive planning among commercial landlords.
In stark contrast, the residential property market tells a different story. A considerable portion of residential landlords remains unaware of the new EPC regulations, and many are still in the dark about the costs involved in making necessary improvements. The high demand for rentals, especially in high-demand areas like the southeast, reduces the urgency for residential landlords to invest in energy efficiency upgrades. Moreover, the government’s decision to retract the planned rule for a mandatory EPC rating of C from 2025 has further diminished the immediate necessity for these upgrades.
Residential landlords also face additional challenges such as rising interest rates and the absence of tax deductions for energy efficiency improvements. These financial pressures have led many to curtail spending or even consider exiting the market. The survey indicates that a third of residential landlords are contemplating selling their properties within the next 12-24 months, reflecting the increasing regulatory and financial burdens they face.
Conversely, commercial landlords are actively planning and financing property improvements. This year, 27% of respondents indicated plans to finance improvements from their reserves, while another 27% are considering shareholder investment, and 19% are exploring bank debt options. Deciding when to carry out these improvements is crucial, with considerations including whether to redevelop properties with tenants in situ or during upcoming breaks. Collaboration with tenants can prove beneficial, as improved energy efficiency can also enhance tenants’ operational costs and reporting.
An EPC survey provides valuable insights into specific measures needed to enhance energy efficiency. While some improvements, such as upgrading a lighting system, may be relatively straightforward, others require significant investment. Obtaining the right advice is essential to help landlords prioritise potential works based on cost and impact, enabling them to make informed decisions.
EPCs are merely one aspect of the sustainability standards that commercial landlords now use to assess their properties. Certification systems like BREEAM are also playing a crucial role, with developers increasingly focusing on reducing embodied carbon by reusing materials during redevelopment. This approach not only bolsters the environmental credentials of a property but also enhances its market appeal.
The proactive stance of the commercial sector in addressing EPC compliance sets a benchmark for the residential sector. However, to cultivate the necessary awareness and interest in energy efficiency improvements among residential landlords, government intervention is essential. Incentives such as grants or legal mandates will be critical in driving progress within the residential property market. As the commercial sector continues to advance, it underscores the need for similar strides in the residential sector, highlighting the overarching importance of energy efficiency in the future of real estate.
Be the first to comment