The new energy regulations imposed by the UK government on the performance of all commercial properties has major implications for landlords, with the 2011 Energy Act set to come into effect on April 12th 2018.
Although that may sound like a long way away there is a considerable amount of work to do to ensure premises comply to a grade E Energy Performance Certificate (EPC) rating. From April 2018 it will be unlawful to let buildings with F and G-rated properties and a study earlier this year by DTZ found that over 40 per cent of properties may currently fall foul of these new standards. All commercial space to let in London over 50 sq. m requires an EPC when sold or rented.
This nationwide statistic includes properties within the capital. London commercial property owners are being urged to develop a new strategy for improving the energy performance of their property portfolio to maintain rental values and provide a positive return on investment.
Paul Brown, head of sustainability at DTZ, said: "These proposed regulations could have a significant impact on landlords leasing property. Final details are yet to be confirmed but once the proposals are launched, we will no doubt begin to see discounts being factored into property acquisitions to cover the improvements needed to make buildings sufficiently energy efficient in order to meet the required standards."
Mr Brown also reiterated the view that commercial property landlords in London and elsewhere in the UK should factor in changes before it becomes too expensive to do so.
"Some landlords may view 2018 as too distant to start worrying now but many improvements will need to be factored into asset plans and the nearer we get to 2018 the greater the demand and the more expensive it will be to implement changes," he added.
Implementing changes soon could prove very profitable for landlords with the difference in rental values between energy efficient properties and those yet to be updated potentially increasing. However, as yet it is unknown whether there will be a 'green premium' rewarding the most efficient buildings.
The 2011 Energy Act is one of many initiatives used by the Government in order to reach the nation’s carbon reduction target of 80 per cent by 2050.
From April this year, the Government introduced further legislation enforcing that EPCs must be prepared prior to marketing a commercial property for sale or rent rather than on completion of any agreement. Subsequently agents are now required to work in tandem with landlords to carry out EPCs in a timely manner.
There are grey areas within the Energy Act that London’s commercial property landlords still require clarification on from the Government. Landlords are unsure about the level of improvements they should make to their buildings. Landlords have voiced concerns about bringing their portfolio up to the minimum E rating for EPCs, with concern regarding the potential for the Government to raise this further in the future, resulting in further refurbishment costs.
In order to allay these anxieties, the Government has proposed a system called the ‘Green Deal’, due to be finalised in September, which will allow landlords to pay nothing up front for energy efficient renovations. Instead, energy companies will pay the costs outright and landlords will be required to repay the difference out of energy savings made over many years.
By taking these positive steps to improve the efficiency of business space in London and beyond, the long-term sustainability of commercial premises will be greatly enhanced; ensuring investment in work space is focused on maximising returns.