Date: 3rd December 2013
It is almost impossible to refute that an indelible line has been drawn for commercial real estate and property markets globally are reflecting on the importance of sustainability in investment and occupational decisions. A change in occupier requirements seeking greener buildings and the increase of climate change regulation that is mandating the reduction in carbon emissions here in the UK and further afield is impacting investor decisions. Consequentially this is necessitating a revised approach to dealing with commercial real estate and with good reason: the UK’s building stock currently accounts for 37% of total Greenhouse Gas Emissions and commercial buildings responsible for 10%. As a result we are witnessing the growth of regulations that are imposing energy efficiency improvements as part of climate change strategies and this will only continue to increase and undoubtedly will effect the future of commercial real estate investment.
The Government will be looking to impose regulation across both new build and existing but existing buildings will be undoubtedly be more challenging for regulators. Presently, there are a handful of key policies, mostly as part of larger pan-European directives, to enhance inspections and ratings of these buildings. These take the form of energy auditing and certification, boiler and air conditioning inspections and incentive and subsidy schemes that look to create a vitally important baseline for performance before enabling improvement works.
In order to fulfil investor and legislative requirements, there is a demand for an increase in transparency and analysis in performance, with the role of certification is central to this. The relevance of certification as a form of compliance is another area of increasing significance with their use being enforced to determine regulatory compliance, taxes and incentivisation. A prime example of this is the proposed tying of the Energy Act of 2011′s Minimum Energy Performance Standards (MEPS) to the existing Energy Performance Certificate as a punitive measure to prohibit the leasing of the worst performing buildings (F & G ratings on the EPC rating scale). Looking further ahead, energy certification may eventually get linked to property transaction taxes, business rates, VAT and capital allowances.
Increasingly we are seeing a greater uptake in green rating systems as they are an effective way to provide the transparency that their investors require and allow for accurate measurement and assessment of the performance of their buildings. Gathering and utilising this performance data is vital to inform key decisions on value, stock selections and design allowing fund managers with a means to establish market supply and demand for ‘green’ buildings. Investment institutions are starting to harness the power of sustainability performance information as they are beginning to see importance of futureproofing the value as a means to ensuring higher returns, higher capital values and higher occupancy rates.
However, as with any threat, on the other side of this is an opportunity. There are a number of opportunities including:
In the future, the worst offending buildings for energy consumption are likely to face increased taxation and restrictions on their ownership and use, which is likely to incur lower occupier demand. This and the effects of accelerated obsolescence and depreciation is impacting investment decisions and the likelihood is that there is a substantial potential for climate change regulation to accelerate the obsolescence of a significant proportion of the built stock.
Investors seen to be making the efforts to improve energy efficiency of their properties will likely have better engagement with their tenants and potential tenants as the market begins to diverge into two tiers centred on green premiums and brown discounts. As we verge closer to the 2018 deadline, it will be interesting to observe to what extent the impact of climate change regulation will effect commercial property investment and how close we will get to our targets for carbon reduction? One thing’s for sure, commercial property has big part to play.
Posted in: Latest News
Tags: Commercial Real Estate, CRE, Responsible Property Investment
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