Up to 700 million ft² of commercial floorspace to undergo energy efficiency overhaul by 2018 (UK)
Thursday 1 September 2011
Savills has estimated that 700 million ft² (approx. 65 million m²) of commercial floor space may need to undergo an energy efficiency overhaul by 2018.
This is according to its latest ‘Opportunities in Green’ report in which the international real estate advisor explores the impact of Private Rented Sector regulations which form part of the 2011 revised Energy Bill.
The firm suggests that the issue of a requirement to upgrade private rented properties to an EPC rating of grade ‘E’ or above will be most pertinent in London. The firm states that due to a large number of lease renewals anticipated to come to the market in the next five years, landlords left with vacant space would be advised to take the opportunity to improve the energy performance of their property. According to DECC (Department of Energy & Climate Change) 62% of non-domestic properties are rented and of this figure 18% have a rating below grade ‘E’.
Michael Pillow, Director of Savills building consultancy, comments: “If the legislation goes through, leasing of a sub grade E standard property will become unlawful from April 2018.
“Although upfront payment issues to enable energy consumers to improve their property are considered within the Government’s proposals under The Green Deal financing framework, in practice there are many issues still to be resolved such as recovering charges incurred during void periods or in multi tenanted properties which could raise concerns and needs close examination.”
Savills does however state that going beyond basic levels of refurbishment can reduce void periods in a property as firms are increasingly showing a preference for greener buildings. This may not directly translate into a higher rental premium but Savills suggests it will improve the long term investment value of a building.
Marie Hickey of Savills research team says: “It’s the avoidance of the ‘brown’ discount rather than the hunt for the ‘green’ premium that will drive investors/landlords to improve the efficiency of their portfolio.
“The UK market has not yet seen a clear hike in values when comparing higher ranking green office properties to that of lower grades. However, if we look to US and German markets we are seeing evidence of clear demand shifts towards green office product with a recent report suggesting demand has tripled in the five core German markets.”
According to Savills latest green office bulletin covering the German market, both leasing and investment market demand for ‘green’ office space has risen significantly over recent years. The annual take-up of ‘green’ office space in the top five German markets (Berlin, Düsseldorf, Frankfurt, Hamburg and Munich) has tripled from approximately 50,000 m² on average between 2005 and 2008 to 150,000 m² in 2009/2010.
With €1.1 billion generated from sustainable office buildings on the German investment market in 2010 the transaction volume was more than four times higher than in 2007 (approx. €0.2 billion) according to Savills researchers, and the share of this turnover in the total office investment volume rose from approx. 1% to about 14% during this time. The international real estate advisor suggests that both trends highlight that sustainable offices are no longer a niche product but will become market standard.
Jon Hutt, Director of Corporate Real Estate at Savills, says: “With the ever increasing costs of energy, early action to introduce green and energy saving enhancements is likely to give properties some advantage over more obsolete stock making them more attractive to occupiers and possibly enhancing rent and value. Review, analysis and delivery well before 2018 will be key.”