Will your buildings be sustainably obsolete by 2018?
From April 2018 it is likely that it will become illegal to rent out any property that does not meet a minimum energy-efficiency standard, which is predicted to be set at an EPC rating of ‘E’ or above — writes Amelia Morgan-Giles of Total Environmental Management (TEM). This gives landlords a mere six-years to improve their buildings’ ratings.
In addition, updates to EPC rating software are expected to cause buildings to drop down a rating; for example, ‘D’ rated buildings are likely to be downgraded and fall into the ‘E’ category — meaning that sustainable obsolescence is on the horizon for many buildings.
Sustainable obsolescence is now seen as a quantifiable risk factor for commercial property and occurs when an occupier, investor or developer perceives a property to be less desirable than its counterpart due to its sustainability credentials. If the environmental credentials of a property cannot be improved within certain financial parameters, the building will be deemed as sustainably obsolete.
Sustainability is an increasingly desirable characteristic of commercial property. Occupiers take factors such as energy costs and efficiency, the building’s EPC or DEC ratings, compliance with environmental legislation and the potential impact of a CRC EES registration very seriously. In addition, companies are conscious of the effect a building’s sustainability has on their CSR credentials and staff retention.
The critical point for sustainable obsolescence is when the remedial investment required to upgrade a property is not economically viable based on future revenue forecasts. As a consequence the property may be earmarked for divestment or development; therefore the challenge for landlords is to accurately forecast when the sustainable obsolescence point will be reached.
What should you do now? For buildings with a ‘D’ rating or below, landlords should complete a new EPC using the latest EPC software and, depending upon this outcome, put in place an investment strategy to improve the building’s rating. This can be funded using the Green Deal or privately, but it is important to think about strategy now because the initial expense of energy-efficiency measures is often high. However, further down the line costs may be recouped through lower energy bills.