We are beginning to see some investors seeking out properties with higher EPC ratings, and where relevant higher BREEAM ratings, however it is not yet clear if capital values are consistently higher for more efficient buildings. As landlords and occupiers continue to seek such space and demand recedes on secondary, lower rated stock this will drive higher capital values on properties which are more energy efficient.
Many organisations are also including energy efficiency as part of their Corporate Social Responsibility, likely in response to the Government’s Net Zero policy push. A third of the UK’s biggest companies have announced their commitment to Net Zero, including UK FTSE100 Vodafone which has pledged to reduce its own carbon emissions to zero by 2030, before eliminating its full value chain emissions, reaching net-zero by 2040. Sainsbury’s has also committed £1 billion over the next 20 years to become net zero by 2040.
2. What sustainability factors do you have on your checklist when valuing a property?
We look at influencing factors including; ground heat source pumps, solar panels, insulation, grey water recycling systems, bike stores, recycling facility, double and triple glazing, electric charging points.
We also look at the construction of the property to establish if it is sustainable and energy efficient. Different approaches have been developed over recent years, including a range of Modern Methods of Construction which are created via a process which focuses on off-site construction techniques, such as mass production and factory assembly, as alternatives to traditional building. The process has been described as a solution to produce more, better quality homes in less time, cutting down the need for travel and the subsequent impact on the environment.
Other MMC options include Modular Construction or Passive House as a voluntary standard for energy efficiency in a building, which reduces the building’s ecological footprint. It results in ultra-low energy buildings that require little energy for space heating or cooling.
3. How do sustainability considerations (such as resistance to climate change, resources used, allowing for liabilities under energy efficiency/ESG legislation, and nature and biodiversity) affect the value of real estate?
The value associated with implementing sustainability considerations in the shortterms remains unclear. The built environment is accountable for 40% of global energy consumption and 33% of greenhouse gas emissions, which indicates that there will certainly be measures introduced to address and reduce this. Our experience of working with more secondary space, given the lack of Grade A office supply in our towns and cities, has shown us that there is little distinguishable difference in value between those with sustainability considerations and those without. The only apparent factor, which isn’t anything particularly new, is that a purchaser of a building with an EPC rating below E would need to invest a considerable amount of capital expenditure to improve its efficiency in order to meet the legal energy efficiency requirements to let a property.
This is set to change from E to D, which means that landlords will be required to review the efficiency of their properties in order to remain within their legal requirements. The incremental steps forward would certainly create a more green, energy efficient and sustainable future for the built environment as, given the announcements in the Energy White Paper, it seems likely that the government will introduce regulations to implement a target of an EPC B by 2030 and interim milestones.
4. What would you say are the key green drivers of value?
Whilst we are not seeing a consistent improvement in values where green investment has taken place, we are seeing some low-cost measures being carried out by landlords that provide a better return on initial investment which include replacement of lighting with LED, various renewable heat sources such as; insulation of air source heat pumps and where appropriate solar panels ground source heat pumps, biomass boilers.
5.How much importance are borrowers and lenders placing sustainability on property that you are valuing?
Little importance is applied by both lenders and borrowers, with the short to medium term priorities being placed on capital returns.
Where property is being purchased to refurbished or redeveloped, the focus is often on cost as a posed to energy efficiency – meaning second hand buildings are not seeing a substantial improvement in green credentials. At the moment, creating a highly sustainable and energy efficient building is costly and challenging in the current environment. I suspect, however, that this will change alongside the potential of the EPC B and Net Zero targets.
6. Do you believe the property industry is doing enough to tackle climate change?
Energy efficient building techniques are cost prohibitive for smaller developers, reducing the potential for the properties in the low to mid-market with purchase at the higher end of the market rarely requesting specific energy efficient additions. Outside of the super-prime market the interest and necessity isn’t there yet.
