The firm suggests that the issue of a requirement to upgrade private rented properties to an EPC rating of grade ‘E’ or above will be most pertinent in London. The firm states that due to a large number of lease renewals anticipated to come to the market in the next five years, landlords left with vacant space would be advised to take the opportunity to improve the energy performance of their property. According to DECC (Department of Energy & Climate Change) 62% of non domestic properties are rented and of this figure 18% have a rating below grade ‘E’.
Michael Pillow, director of Savills building consultancy, comments: “If the legislation goes through, leasing of a sub grade E standard property will become unlawful from April 2018. Although upfront payment issues to enable energy consumers to improve their property are considered within the Government’s proposals under The Green Deal financing framework, in practice there are many issues still to be resolved such as recovering charges incurred during void periods or in multi tenanted properties which could raise concerns and needs close examination.”
Savills does however state that going beyond basic levels of refurbishment can reduce void periods in a property as firms are increasingly showing a preference for greener buildings. This may not directly translate into a higher rental premium but Savills suggests it will improve the long term investment value of a building. Marie Hickey of Savills research team says: “Its the avoidance of the ‘brown’ discount rather than the hunt for the ‘green’ premium that will drive investors/landlords to improve the efficiency of their portfolio”.
“The UK market has not yet seen a clear hike in values when comparing higher ranking green office properties to that of lower grades. However, if we look to US and German markets we are seeing evidence of clear demand shifts towards green office product with a recent report suggesting demand has tripled in the five core German markets.”
Jon Hutt, director of Corporate Real Estate at Savills, says: ”With the ever increasing costs of energy, early action to introduce green and energy saving enhancements is likely to give properties some advantage over more obsolete stock making them more attractive to occupiers and possibly enhancing rent and value. Review, analysis and delivery well before 2018 will be key.”