Get ready to spend money on your commercial buildings…

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It doesn’t take a genius to work out that as we get nearer to the Government’s commitment to net zero carbon emissions by 2050 – and all the other the interim targets – landlords will need to invest considerable amounts of cash into their commercial buildings.

It has been suggested that around 5% of rental income will be required to pay for necessary up-grade on existing buildings. It will take a lot of work to bring some of them up to a standard where they meet the required energy efficiency levels required of the future.

Following the recent publication of the government’s new Industrial Decarbonisation Strategy, the British Property Federation is calling for a roadmap that will give owners a steer for longer term net-zero regulatory requirements on commercial buildings.

Further consultations

The new Government strategy, including a second consultation on the Minimum Energy Efficiency Standards (MEES) for commercial buildings, sets out a target of an EPC rating of “B” for all commercial properties by 2030.

It is also planned that a new set of rules are needed for measuring the energy performance of commercial and industrial buildings. Performance-based energy ratings will apply in an initial first phase to all commercial offices above 1,000 sqm in England and Wales. Department for Business, Energy & Industrial Strategy figures show there are approximately 10,000 office buildings fitting the criteria.

Given that owners are making decisions now for existing buildings and new developments that will go beyond 2030, the British Property Federation is urging the Government to provide a net-zero regulatory roadmap beyond 2030.

Making plans for the future

Land Securities, one of Britain’s biggest commercial landlords, owner of the Bluewater shopping centre in Kent and the Piccadilly Lights in central London, is planning to spend £135million bringing its properties up to standard.

The owner of an £11 billion portfolio of shopping centres, offices and leisure complexes around the country will start removing gas boilers and replacing them with electric alternatives such as air source heat pumps, installing LED lighting and adding more solar panels to its portfolio of buildings.

The company also plans to use more technology to help its tenants reduce their energy consumption. The group calculates that these changes can cut its carbon emissions by 70 per cent and bring all its buildings up to an energy performance certificate (EPC) rating of B or above by 2030, in good time to meet the deadline set by the government for commercial landlords.

Land Securities chief CEO Mark Allan says:

“What all the occupiers are saying is that the quality of the space is really important. If [companies] haven’t got the right quality of space or the right sustainability credentials, then they are really struggling to attract the right calibre of staff into their business.”

As a commercial landlord Landsec has recognised the importance of serving its tenants’ needs in relation to environmental issues, those being: “not only essential from an environmental perspective but an economic one too” says Allan.

Analysts had estimated that it could cost the company upwards of £300 million to bring all of its buildings up to standard by the end of the decade, but Allan has said that he is “very confident” in his team’s costings.

Land Securities is now chasing £33 million in unpaid rent owed from during the pandemic, but says its rent collection rates are creeping back towards normal, with 91 per cent collected for the current quarter compared with 78 per cent at this point last year.

Shares in the company have risen by around 4 per cent, to 744p, their highest point in six months. The company is still listed as a FTSE100 company with a market valuation of around £53 billion!

In the six months to the end of September the company made a profit before tax of £275 million, that’s compared to an £835 million loss in the same period in 2020.

Mark Allan has said that they have seen a “marked and sustained increase in activity and office utilisation” since September, that’s particularly the case in London. “Anyone who has tried to make a restaurant reservation in London in recent weeks will know how busy the centre of town has been” Allan says.

With more and more people drifting back to city centres, it’s giving companies like Landsec the confidence to plan ahead and commit to investing in existing space and new space.

How to improve your commercial property EPC rating:

Many commercial property owners with existing space will find that their EPC rating isn’t as high as will be needed in the near future. They now need to be planning to make changes to the energy efficiency of their buildings to meet the new government standards.

There are many fairly straightforward and inexpensive ways to start, such as the following:

• Fit all LED light bulbs for a quick and inexpensive way to improve your EPC rating
• Insulate the walls and ceilings with at least 270mm thickness to and fill the cavity walls with insulation. With solid walls there are many new products on the market to line both internal and external walls
• Install double or even triple glazing, good amount of energy is lost through windows
• Replacing the heating boilers with modern equivalents or even air source / ground source heat pumps. Just switching to a newer model can make huge difference to your EPC ratings
• Fit smart heating controls such as intelligent thermostats
• Upgrading your air conditioning systems to more energy-efficient models
• Depending on the location and facilities, consider solar panels and wind turbines.

Previous EPCs will provide guidance – you should do your research and consult experts before deciding on an overall energy saving strategy.

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