Cushman & Wakefield: Act now to ensure commercial property buildings comply with Energy Act

Nearly a fifth of commercial property buildings in England and Wales could be barred from being let in the future because they do not comply with new Government energy standards, according to global real estate services firm Cushman & Wakefield.

The Government’s Energy Act included a provision that from April 2018 it will be unlawful to rent out a business property with an EPC rating below the Minimum Energy Efficiency Standards (MEES), which is an ‘E’ rating.

Any building that fails to meet this requirement (rated ‘F’ or ‘G’) will be classed as “substandard” and may suffer a substantial drop in value.

Research conducted by Cushman & Wakefield found nearly 20 per cent of commercial property buildings currently fall into the ‘F’ or ‘G’ categories and 19 per cent sit just above the legal cut off with an “E” rating. Overall, nearly 40 per cent of all properties could face a significant performance risk.

Alan Somerville, Head of Strategic Energy and Sustainability at Cushman & Wakefield, explained:

“Investors need to act now. Although 2018 may seem some way off, given the time needed to identify where building efficiency upgrades are needed and to ensure the work is completed, delaying this process could prove very costly.”

Owners and investors are being urged to understand their risk and make improvements to ensure their buildings exceed the minimum energy efficiency standard – or face the prospect of the value of their assets decreasing significantly.

Philip Webb, Head of Project Management and Consultancy at Cushman & Wakefield, explained that occupiers will increasingly favour higher EPC-rated buildings which would boast lower running costs. He added:

“These regulatory changes will have a significant impact on landlords’ ability to lease property, with the worst rated buildings unlettable by law.”

Currently all commercial properties over 50m² require an EPC when sold or rented, but there is no legal obligation for landlords to carry out any efficiency improvements.

The assessment of properties includes the efficiency of tenant fit-out, so achieving improved EPC ratings can be challenging for landlords.

Non-compliance with these new regulations also risks penalty fines of up to £150,000.