It was recently reported that Energy Performance Certificate (EPC) upgrades to central London office stock could cost as much as £370m, with up to 11.9m sq ft of EPC C-rated office space set to hit the market by the end of 2027. (React News)
The Minimum Energy Efficiency Standards (MEES) Regulations which came into effect in April 2023 ban landlords from letting almost all commercial property that has an EPC lower than “E”. Under current guidelines commercial property will need to be EPC C by 2027 and EPC B by 2030.
Despite this, there are still over 19,000 sub-standard commercial rental properties with EPC ratings below an “E”. Non-compliance could result in penalties of between £10,000 and £150,000 calculated on the rateable value of the property and tens of thousands of properties will be affected – with 80% of the UK’s industrial stock more than 20 years old.
When asked respondents to our last Commercial Property Survey if investors, buyers, tenants and occupiers are factoring in the costs associated with the changes to EPC.
Our research found that 60% of tenants/occupiers are not preparing for any cost increases to rents, with just under a quarter (24%) actually factoring in any prices rises to their rents/business plans. Likewise, a quarter (25%) of investors/buyers are not factoring in, or are even aware of the future upgrade costs, with 75% factoring in the costs of EPC upgrades.
There is also a proposal that commercial properties must have an EPC rating of C or higher by 1 April 2027, with PwC reporting that this proposed change could render as much as 85% of UK office buildings at risk of being unlettable. Even if this target falls by the wayside, landlords should be thinking ahead considering tenants’ expectations around ESG credentials.
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