£1.4bn rent at risk as EPC legislation comes into force

£1.4bn rent at risk as EPC legislation comes into force
  • Non-compliant commercial buildings put £1.4bn regional rent at risk in 2023
  • Increases to £4.8bn at risk by 2030 as regulations tighten
  • This leaves the equivalent of 80 Shards unrentable across England
  • London’s commercial real estate (CRE) market will be the hardest hit by the 2023 regulations, followed by the North West and South East

New Government legislation, which came into effect on April 1 2023, could leave £1.4bn annual rent at risk in the commercial property sector in England.

Commercial buildings that do not have an energy performance certificate (EPC) rating of E or above are no longer able to be traded or leased under the new legislation. Set to evolve over time, the regulations will only become stricter, with the minimum EPC rating rising to C in 2027 and B in 2030. This could see the level of regional rent at risk increase to £3bn and £4.8bn respectively, as legislation tightens.

Data from EG – an established provider of data, news and analytics for the CRE sector – demonstrates the impact that the first phase of the legislation will have on the CRE market in England’s regions. In London alone, 24.1million sq. ft will fail to meet these regulations, putting the equivalent of 20 Shard’s at risk. Looking across the whole of England, this number rises to 95.6million sq. ft – or 80 Shards.

Tom Flanagan, Product Manager at EG comments:

“The CRE market will undoubtedly take a significant hit following the introduction of this new EPC legislation. With billions worth of rent taken off the market and assets left stranded, we can expect to see rental premiums put on energy efficient buildings and competition for properties increasing.

“For many CRE landlords, now is the time to take action as the EPC regulations only strengthen over the coming years. By acting now, landlords can ensure their properties are compliant for the years to come and – most importantly – meet the market demand for energy efficient, sustainable buildings.”

For landlords of properties that do not meet the new EPC standards there are steps that can be taken.

Liz McKillop Paley, Real Estate Principal Associate at law firm Shoosmiths, added:

“The new rules enforced from April 2023 only apply if a building falls under MEES regulations and where there is a valid EPC. If a property is vacant, it can remain so without an EPC. The risk of not making improvements, however, is that a landlord could be left with a stranded or obsolete asset.

“Carrying out cost-effective energy efficiency improvements and meeting the EPC standards – even through making small upgrades during a building’s life cycle – can have a big impact, ensuring a landlord complies with the regulations as they evolve, while also avoiding being left with a property that the market deems substandard.”

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