Commercial property and environmental sustainability

Commercial and industrial real estate have an enormous impact on environmental sustainability. Buildings above 1,000m² account for only 7% of all non-domestic buildings, but use over half of the total energy used, and carbon emitted, by all non-domestic buildings. In terms of reducing energy consumption and carbon emissions, the Government estimates that, as an average across each sector, private non-domestic buildings over 1,000m² will need to be using approximately 30% less energy in 2030 than they were in 2015. (Source: UK Government Department for Business, Energy & Industrial Strategy. The Non-Domestic Private Rented Sector Minimum Energy Efficiency Standards: Implementation of the EPC B Future Target. 2021 and Introducing a Performance-Based Policy Framework in large Commercial and Industrial Buildings in England and Wales. 2021).

So, what does this mean?

It’s clear improved management of commercial and industrial buildings must be part of the solution to limit greenhouse gases and meet the governments nationally determined contributions (NDC’s). Tightening standards and implementing changes can have higher cost implications but delaying action can be far worse. It is important for investors and real estate professionals to take a closer look at this. Moving to greener solutions will generate opportunities in other parts of the economy, for example we are likely to see a lot more energy assessors, refits and renewable energy and monitoring tech going into commercial buildings in the coming years which itself spurs innovation and a demand for new skills.

Commercial and industrial buildings are regarded by the Government as one of the most difficult challenges on the UK’s decarbonisation pathway, accounting for a third of UK emissions from buildings.

As a result, the Government has recently announced two energy efficiency consultations that close on 9 June 2021. The first consultation seeks views on the Government’s proposals to introduce a national performance-based policy framework for rating the energy and carbon performance of large commercial and industrial buildings in England and Wales. This goes beyond just looking at the energy performance of the building and seeks to reflect the way in which a building is used by its occupiers. The second consultation seeks views on the proposed framework to improve the implementation and enforcement of the EPC B target by 2030 for privately rented non-domestic buildings in England and Wales – a big step-up from the current minimum standard ‘E’. (Source: GOV.UK). This action forms part of the Government’s pledge to achieve net-zero greenhouse gas emissions by 2050 which is being further discussed at the crucial COP26 summit later this year in Glasgow.

Owners and single tenants of buildings above 1,000m² will be required to obtain a rating for their building on an annual basis and have that rating disclosed publicly online. This will ensure that large businesses and building owners are responsible for their energy use and understand the implications. This ensures prospective tenants and buyers are made aware of the rating before the building is let or sold and the consultation considers how this will interact with the commissioning of EPCs. The consultation also proposes that instead of needing to obtain EPCs alongside performance-based ratings to prove compliance, landlords will be able to agree the set of cost-effective measures that they need to install under the Minimum Energy Efficiency Standards (MEES) with the scheme administrator when they are first required to obtain annual performance-based ratings. 

In order to tackle the challenge of climate change, we must reduce emissions in all types of buildings, both new and old. The value of getting carbon savings early from larger commercial properties  is important. This transition risk is now manifesting for operators of businesses not just landlords as the proposed new regulations may place some of the burden on occupiers in terms of their fit-out and use of the building.

Over the last few years financial lenders have also become more aware of the importance of EPC ratings and the introduction of these new regulations is likely to have an impact on both landlords and tenants and will require forward planning and upgrading to buildings. Banks are uniquely positioned to work collaboratively with their customers to promote projects that reflect the vision of a sustainable future.  Green finance can be used to support the necessary improvements to promote a positive environment change because of the increased pressure placed on the industry to improve standards.

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