Tougher Government energy standards could significantly impact commercial property values

More than 40 per cent of commercial buildings in the UK could be in danger of failing tough new Government energy standards, according to a study by global property services company DTZ, part of UGL Services, a division of UGL Limited (ASX: UGL). The new standards could significantly impact the future value of these buildings, unless improvements are made to increase energy efficiency.

Last year the Energy Act was passed through parliament setting out provisions for additional requirements to the current legislation around Energy Performance Certificates (EPCs). Currently all commercial properties over 50 sq m require an EPC when sold or rented. The certificate includes an energy rating similar to those used for white goods ranging from A down to G although there is no legal obligation for landlords to carry out any efficiency improvements.

However, the new Act – which is one of the Government’s tools to reach the UK carbon reduction target of 80% by 2050 – includes provisions which will tighten the minimum requirement for buildings around energy efficiency. The Act states that from April 2018, it will be unlawful to rent out or sell business premises that do not reach a minimum energy efficiency standard threshold, envisaged to be an EPC rating of ‘E’ or above. This means that those properties which don’t meet the new standards – or are on the borderline – could suffer a significant drop in overall value unless they take approved measures to improve energy efficiency.

Over the past 12 months DTZ’s energy team has completed more than 1,000 EPC audits and has found that around 40 per cent would be on the borderline E rating or below and could well see their value severely impacted.

James Murray, Associate Director and DTZ’s Environmental Champion in Cardiff, said: “These proposed regulations could have a significant impact on landlords leasing property. Final details are yet to be confirmed but once the proposals are launched, we will no doubt begin to see discounts being factored into property acquisitions to cover the improvements needed to make buildings sufficiently energy efficient in order to meet the required standards.

“Some landlords may view 2018 as too distant to start worrying now but many improvements will need to be factored into asset plans and the nearer we get to 2018 the greater the demand and the more expensive it will be to implement changes.”

A further change in recent legislation is that from April 2012, EPCs need to be prepared prior to marketing a property for sale or rental rather than on completion of any transaction. Agents now share responsibility with property owners for ensuring that EPCs are conducted in a timely manner.