Large swathes of London’s office property risk becoming stranded assets as landlords run out of time to embark on major upgrades needed to meet new energy efficiency standards. Olivia Rudgard from Bloomberg News discusses latest developments in an article on the Financial Post website.
Thousands of London Offices ‘Risk Obsolescence’ Under New Energy Efficiency Rules
Large swathes of London’s office property risk becoming stranded assets as landlords run out of time to embark on major upgrades needed to meet new energy efficiency standards.
That’s according to Robert Irving Burns, a property consultant, which says its analysis of government data shows that 78% of offices in Westminster and 71% in the City of London “will fail” to meet Minimum Energy Efficiency Standards (MEES) expected to take effect in the early 2030s.
“Not only will achieving compliance require enormous capital expenditure across the board, but current market capacity — with labor shortages and financing constraints — will make achieving the early 2030s deadline virtually impossible,” Antony Antoniou, chief executive of RIB, said in a statement on Tuesday.
The UK government has said that building owners in the country will need to meet tougher standards for energy efficiency in order to be able to lease commercial properties. That will likely mean having an Energy Performance Certificate (EPC) rating no lower than “B” by the early 2030s.
Landlords will struggle in the new regulatory environment given the “huge scope” of the challenges ahead, RIB said. In all, more than 12,000 offices across central London currently require “significant” upgrades to comply with the new regulations, it estimates. In Westminster alone, more than three-quarters of offices “risk obsolescence,” RIB warned.
The EPC deadline is being viewed by some investors as an opportunity to buy commercial real estate at a discount, invest in green refurbishments and sell or lease the upgraded property at a premium. Firms engaging in such deals include Blackstone Inc., Brookfield Asset Management Ltd. and Henderson Park Capital Partners, Bloomberg reported in February.
“We’re seeing traditional landlords, smaller landlords selling, and we’re seeing specialist funds who are looking for these office buildings,” Antoniou said in an interview.
The highest EPC rating of “A” is held by just 4% of office properties in the City of London, according to RIB. The lack of prime real estate with high EPC scores is already forcing potential tenants to delay plans to move into London offices, RIB said.
The upshot is that the UK capital faces a future with a two-tier office market, as large numbers of landlords fail to meet the looming EPC deadline, according to RIB.
“As demand increasingly concentrates on high-performing, energy-efficient buildings, the market is becoming more polarized,” it said. “Assets with strong sustainability credentials are commanding premium rents and values, while older, non-compliant stock are generating significantly lower rents and seeing longer void periods.”
External link
Energy in Demand - Sustainable Energy - Rod Janssen 
The poor state of many offices is probably due to a range of reasons,
not least archtectural fashions (steel and glass is the latest look
sir!) coupled to an ageing building stock (1960s – 1970s). But wait,
what is this I see? A building designed in the late 1960s, built &
finished in 1971 and… far surpassing the A EPC standard. MANWEB’s head
office needed no heat input until outside temps were minus 4C. But it
was not built of steel and glass (it had windows but they were designed
to keep solar gain within manageable proportions & yes the building was
fully air-conditioned). When I look @ London offices they are a
collection of ego-driven trash (by architects) or energy incontinent old
trash designed by architects unfit to use Lego. & the MANWEB building?
demolished in an act of corporate vandalism by Scottish Power (in the
1990s when it was still, the most energy efficienct building in Europe).