How to tackle the commercial EPC time bomb

In short, an Energy Performance Certificate (EPC) rates how energy efficient a building is using a grading system from A to G (with ‘A’ the most efficient grade).

As of April 2023, commercial buildings must meet the minimum EPC rating of ‘E’ or above otherwise they are prohibited from being sold or leased. This is only the first hurdle of a long and challenging race. Before 2027, commercial buildings must have an EPC rating of a ‘C’ or above and this will ramp up to ‘B’ or above in 2030.

Research from FORE Partnership estimates that there are around 6,500 office buildings above 20,000 sq ft in London that are in desperate need of retrofit to meet these EPC regulations, with only around 1-1.5% of existing commercial buildings being retrofitted. Meanwhile research from Savills highlights that over 1 billion sq ft across the UK is below the required EPC ‘B’ rating, further highlighting the size of the challenge at hand.

However, this presents excellent opportunities for savvy hands-on investors and developers to acquire, retrofit and then attract the best commercial occupiers.

Improvements to wall and roof insulation will make a major difference, helping to manage temperatures and reduce heat loss, while replacing inefficient lighting with energy efficient LED options and installing occupancy sensors or timers can help control usage. Another aspect to consider is the installation of solar panels on the roof. This can help generate an electric source resulting in less electricity being used from the grid.

However, all of this doesn’t come cheap. The cost of upgrading an existing building from how it is today to 2030 standards is estimated to be £40 per sq ft – not including normal refurbishment costs, which is more than some buildings can command in rent alone.

To support the retrofitting of existing commercial buildings, investors can access incentives and funding from the UK government. In addition, there are many specialist lenders in the market that offer green loans to finance this area of refurbishment.

With tightening deadlines looming and taking into account the fact that many buildings will need to be made vacant for necessary works to take place, opportunistic investors should be keeping an ear to the ground now for those seeking to offload discounted buildings before they become stranded EPC-failing assets. In this landscape, those with in-house development experience will come into their own.