How and when should owners refurbish their commercial property is an issue tackled by the residential and commercial property
management company Savills, in a new report out this week.
Entitled Opportunities in Green, it analyses the Energy Bill, currently the subject of a Parliamentary Review, and examines the section devoted to Private Sector Regulations. This states that residential and commercial property landlords will be obliged to ensure their buildings meet a minimum E grade Energy Performance Certificate (EPC) by 2018.
Savills foresees a ‘shift towards refurbishment rather than new development over the next few years’ and consequently are advising landlords that ‘it may be sensible’ to ensure that any planned work is carried out to meet the E grade ahead of the deadline. While it is said to be difficult to establish the exact amount of work needed, estimates of floor space in need of this refurbishment work hover at around 700,000 sq ft in total. ‘To put this in context, this would equate to a similar size to all rateablecommercial floorspace in London,’ says Savills, which goes on to point out that the capital will see large numbers of leases become available in the next five years. While this may not ‘automatically result in occupiers leaving their existing premises’, the advice is that ‘going beyond the basic refurb to improve efficiency and the EPC rating of the property may prove beneficial’.
Commercial property landlords should also have an eye on April 2016, when any request from an occupier to improve a property’s energy efficiency will need to be granted. However this doesn’t mean landlords will have to foot the bill. Instead they are advised to look at the Green Deal, a government initiative brought in by the Department of Energy and Climate Change. Under the terms of the Green Deal, occupiers do not pay any money for having their buildings brought up to the necessary level of energy efficiency. Instead they pay for the work over a number of years through increased energy bills.
What does that mean in practical terms? The jury seems to be out. Some say it ‘should be a win-win’ for companies, workers and consumers, who will all benefit. Reducing energy use means reducing carbon emissions, one of the government’s key pledges as set out in the 2008 Climate Change Act. However, others say it could be a loser for commercial property owners. One study looked at costs for four non-domestic buildings over a 25-year period. In each case, it found a projected loss, ranging from £48,000 for an industrial unit to over £1m for an office.
Then there is the question of what happens when improvements are made to a commercial property which then stays empty for a length of time. Should the incoming tenant’s bills be adjusted to compensate for the void period?
Looking ahead, a trend of occupiers seeking greener properties is envisaged. Commercial property owners should prepare for this, says Savills, pointing out that, over the lifetime of a commercial property, a reduction of void periods will boost its investment value while insuring against further legislation.
The spectre of a ‘brown discount’ is also raised in the report. As buildings become greener, offering occupiers reduced bills through energy efficiency, buildings that perform towards the lower end of the energy efficiency spectrum will need to offer financial inducements to compensate.
It appears that, for commercial property owners, if the future is to be bright, it needs to be green.
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