The push to decarbonise and achieve energy efficiency from real estate is having an ever-increasing impact on all parts of the property sector – by Mark James

 
Whilst it is accepted that the sector is making big strides in taking action, it is also noted that in some parts the pace of change is slow. To quicken this pace the UK government has been exerting significant pressure on landlords and developers to meet Energy Performance Certificate (EPC) targets. How is this faring?

Whilst the commercial EPC targets remain in place, a degree of uncertainty has emerged around these targets following the prime minister’s September 2023 speech on the government’s vision for meeting the UK’s net zero goals. As Sunak’s speech turned to property, residential landlords no doubt breathed a sigh of relief as the prime minister announced plans to relax/scrap its deadlines in relation to heat pump implementation and the meeting of EPC targets. However, there was a curious absence from this part of the discussion; the commercial real estate sector. Given the prime minister’s allusion to EPCs was entirely confined to the residential market, there has since been doubt as to where this leaves the government’s approach to commercial property, and in turn, how the sector will respond.

Government commercial EPC targets have been controversially high, with it having already been the case that those offices that did not meet the EPC “F” deadline of April 2023 were deemed unlettable. In turn, research from Savills suggested that 87% of the current office stock in the UK is still below a “C” rating, meaning that these spaces will also not be lettable from 2030. Although there have been reports that the EPC C deadline will be updated, no changes have been made as of yet and there are no signs that it is to be scrapped in the same manner as residential properties. However, will this have a significant effect on the commercial sector?

While pushing out targets will initially take the pressure off some landlords to make improvements on poorer quality stock, the scrapping of EPC deadlines would be unlikely to affect the wider push on the part of occupiers towards taking sustainable and efficient spaces. Furthermore, the value of sustainability in recruiting talent continues to grow, as younger workers especially are showing greater awareness of and appreciation for employers actively pursuing sustainable policies. Not only has sustainability become more important to younger people, with Gen Z being branded the “sustainability generation”, but it is this part of the commercial property sector that is also showing signs of influencing a change in direction of corporates and highlighting the importance of the topic to those at board level.

While there is still considerable uncertainty around EPC targets, it is clear that the general direction of travel for government regulation of the property market is towards a relaxation of deadlines around decarbonisation requirements, almost kicking the can further down the road. Yet it is the groundswell of influence from younger parts of the sector that could counter the government reneging on its previous targets. For more well-established firms such a move is less consequential, as they continue their push towards achieving their own ESG (Environmental, Social and Governance) goals which in many cases are already over and above government requirements. Whilst it is beneficial that larger companies are likely to keep up the pace of change in terms of sustainability to meet the UK’s net-zero target, a push will be needed from all levels. This encompasses everyone from market-dominating firms through to SME’s and from junior staff up to senior leadership. Our hope is that despite the government rethink on decarbonisation deadlines, 2024 will be the year in which sustainability goes from being theoretical for some of the UK’s business community to a fully-fledged actionable initiative.
 

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