New rules to trigger energy overhaul as occupiers seek greener buildings – Savills
Going beyond the basics when refurbishing a property can reduce void periods, says Savills, as occupiers are increasingly showing a preference for greener buildings. Savills notes that new legislation, if passed, will make the leasing of a property with an EPIC rating of below Grade E unlawful from April 18. It says the requirement to upgrade private rented properties to Grade E or above could be most pertinent in London, where the large number of lease renewals expected during the next five years means that landlords are advised to take this opportunity to improve the energy performance of their properties.
“According to the DECC, 62% of non-domestic properties are rented, and of this figure, 18% have a rating below Grade E,” Savills points out. It says up to 700m sq ft of commercial floorspace could undergo an energy efficiency overhaul by 2018.
Michael Pillow, director of Savills building consultancy, says there are many issues still to be resolved under the Green Deal financing framework, such as recovering charges incurred during void periods or in multi-tenanted properties, which could raise concerns, and which need close examination.
Marie Hickey, of Savills’ research team, says: “Its 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”.
Although improving the energy performance of a building might not lead directly to a higher rental premium, Savills suggests that it would improve the long-term investment value of a property. “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,” Hickey adds.
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”.
