The Winners and Losers of
Energy Efficiency in the
London Real Estate Market
The Winners and Losers of Energy Efficiency in the London Real Estate Market
The overall value of real estate assets in London has seen a fall recently, with rising interest rates, higher borrowing costs, and decreasing demand. However, against this seemingly bleak backdrop there are key opportunities emerging for landlords and REITs who already meet Energy Performance criteria, or those who are willing to retrofit their spaces – and significant risks for those who delay.
With conclusive evidence that since 2019 there has been an accelerating sales price gap for similar buildings with and without sustainability ratings, which now stands at 25% for London offices, the need for upgrading buildings to offer high-quality, amenity-rich, and energy-efficient offices has never been more urgent. The demand for these spaces will only increase now hybrid working has settled and companies revise their net zero targets.
Under the UK Minimum Energy Efficiency Standards (MEES), commercial buildings with an Energy Performance Certificate (EPC) rating of less than B by 2030 will be unable to legally lease their buildings. Further, research from Deloitte found that 80% of London offices do not currently meet these standards and significant refurbishments are required to prevent energy-inefficient offices from becoming stranded and unable to be leased. For those ahead of the curve the rewards are clear to see. With a squeeze on supply as some delay in meeting energy efficiency standards that by 2030 will be imperative if a portfolio is to remain active and producing the highest yields possible, it is more vital than ever to secure future-proof commercial assets whose market appeal will endure.
Published: April 20 2023
Author: Alexandre Piechaud