As much as 1.4bn sq ft of retail space – or 83% of the UK’s stock – may need energy efficiency improvements if it is to remain lettable a decade from now.
A new report from Savills reveals that 1.4bn sq ft of retail real estate is currently below the energy performance certificate B rating being considered a minimum for 2030.
Improving ratings “will come at a considerable cost and in many cases may not be economically viable”, Savills’ report said, adding: “There is a strong correlation between the worst performing assets and high retail vacancy rates, which begs the question in some instances whether bringing some shops up to grade will actually be worth the investment.”
The biggest challenges will come in smaller shops that will prove more difficult to retrofit, the agency said.
“For large institutional landlords, ESG obligations and lettability of space will be key drivers in reducing outlet emissions,” Savills said. “The size of their individual investments and access to capital will increase viability. However, most retail property emissions are not associated with shopping centres, retail parks and large high street blocks, which only account for around 25% of retail property emissions, the rest being from smaller investors, largely in fragmented ownership.”
In the residential sector, some £330bn of investment could be needed to help implement the energy efficiency measures needed to meet the country’s 2035 net zero target. Savills singled out the sector as facing “particular difficulties” in achieving net zero, highlighting the challenges of incentivising homeowners to make improvements.
Chris Cummings, engineering and design expert in the agency’s Savills Earth team, said: “The multi-faceted nature of the real estate sector, with its complex ownership structure, means that there is no one-size-fits-all solution to our particular climate change challenges… Encouragingly a growing understanding of embodied carbon measurement is already helping to deliver greener credentials of older stock. Yet market forces on their own are insufficient if we’re to play our part in helping the UK reach its net zero targets.”
Savills has set out six steps it says the government could take to help real estate and other business sectors achieve net zero goals:
- a “consistent” roadmap setting requirements across all sectors;
- fiscal incentives for homeowners to encourage retrofitting;
- clearer performance reporting requirements;
- new incentives and penalties in the energy sector to “rebalance” preferential access to grid capacity;
- a more consistent carbon policy for new development; and
- fresh government investment in retrofitting.
Richard Rees, managing director of Savills UK, said: “The question of unlocking investment is a key issue for the real estate sector as we aim to reach our own sustainability goals. The environmental, social and governance agenda is often framed in terms of risk, stranded assets and the high cost of achieving carbon neutrality. But the scale of change needed presents forward-looking investors with new opportunities and investing in green property does not necessarily mean sacrificing returns.”
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