Commercial landlords in England and Wales are set to lose the equivalent of £750m per year in rental income if they fail to comply with the Minimum Energy Efficiency Standard Regulations, according to the latest research.
According to findings from Search Acumen shared exclusively with EG, nearly 18,000 commercial leasehold properties have not met MEES legal requirements, with offices among the worst-performing sectors. MEES came into effect in April last year, prohibiting landlords from leasing buildings with an EPC rating below E.
Based on average rental values, landlords with EPC ratings of F or G across England and Wales would see that amount in potential rent wiped out every year.
Researchers estimated that it will take until 2038 for commercial leasehold properties below a B rating to meet the 2030 MEES standards, meaning the sector will miss its regulatory deadline by nearly a decade.
The rate of progress slows to 21 years from now when factoring in property types beyond those that are rented, such as those for sale and under development. That means it will be closer to 2045 before all commercial properties in England and Wales are fully compliant and rated at B or above.
Search Acumen said that timeline has worsened from August last year, when it was forecast to take 15 years.
However, researchers pointed to signs of positive change. In the past nine months, there has been a reduction of just over 1,000 properties rated F or G, equalling a £250m saving since their landlords can now legally rent them out.
Since the rules came into effect, around 5,000 properties have had their ratings lifted to meet the minimum requirement.
Offices were found to be the most likely property type to be non-compliant, with almost 8,000 rated F or G. Some 13% of offices were rated A+, A or B.
Hospitality posted the highest proportion of A+, A and B-rated properties (27%) and the lowest percentage of F or G-rated buildings (2%).
Just 12% of buildings in the education sector were rated as A+, A or B, despite only having 2% of buildings rated F and G.
Andrew Lloyd, director at Search Acumen, said: “Complacency in energy upgrades will continue to hamper yield and transactional growth – now is the time to act.
“While the commercial sector has faced many hurdles in the past 12 months, in which despite falling inflation and a stable base rate fiscal drag continues to bear significant weight, it is important for commercial landlords to look 10 steps ahead to avoid obsolescence.
“High-performing buildings command the best commercial yields and have been a fundamental driver in leasehold transactions, kicking lower-grade buildings to the kerb.”
Lloyd added that real estate has been a “traditionally sluggish sector when it comes to change” and that it “cannot afford to be stagnant”. He also noted that the bureaucratic process of getting a new EPC rating can take time, compounding the problem.
“The truth is that we have a long road ahead of us, and the pace of change needs to accelerate dramatically if we want to meet the 2030 mandate,” said Lloyd.
“It is time for us to start measuring real estate through an environmental lens to avoid being widely out of step with the UK’s climate commitments. By providing comprehensive data on energy efficiency alongside other critical factors, we are equipping property professionals to make better-informed decisions that protect investment value while also supporting sustainability goals.”
See also: EG INVESTIGATION – Landlords face £16bn EPC time bomb
Image © Arnulf Hettrich/imageBROKER/Shutterstock (13784654e)
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