It’s easy to become focused on commercial buildings as engineering challenges – how can we make them more energy efficient? How can they promote occupant wellbeing and productivity?
But of course, these buildings are far more than places where people work and live. They’re also (or perhaps even foremost) financial assets.
Without investment groups such as pension funds and REITs, the commercial buildings we see rising out of our cities won’t happen.
The organisations with the money therefore have significant influence over the sustainability of buildings.
We’ve spent years saying that sustainable buildings are a more profitable asset, and now the message seems to be getting through
Very big money
Legislation is very important in driving their decisions, of course. It has a direct impact on the design and operation of commercial buildings.
However, as we know, legislation often sets the lowest achievable standards for areas such as energy efficient. Going further than the law requires means extra investment and clients who are willing to push for it.
This means it’s really up to those with the money to ask for more in terms of sustainable features in design and operation – and they only do that if they see these sustainability and energy efficiency measures as financially worthwhile.
Well, the tide seems to be turning in that direction.
A growing number of investments groups and pension funds are looking to boost their investment in UK commercial property, with a very clear focus on sustainability and reduced carbon footprint as the key to achieving better returns.
And we are talking very big money.
For example, it was reported that developer Frasers Property UK has secured a £100 million, five-year ‘green’ loan (from a Chinese banking group) to redevelop The Rowe building in Whitechapel, east London.
Frasers has stated that its goal is to certify 80% of its portfolio with green building certifications by 2024 – and to finance the portfolio with green and sustainable financing.
Another London scheme, 11 Belgrave Road will be refurbished into a £50 million net zero office. The work is carried out by BAM for developer Quadrum.
And UK pension fund manager Aviva has created a £1 billion fund to invest in real estate assets where carbon emissions can be reduced and the assets made net zero.
In early May 2022, Aviva announced that it had achieved its goal of investing the full amount, just 18 months after the fund launched.
One of the big drivers for the refurbishment of older buildings has been a change in the MEES requirements (Minimum Energy Efficiency Standards). Government is proposing a minimum EPC requirement for leased commercial buildings of B by 2030, and this adding fuel to the engine of change in the market.
According to research by property consultant Savills, 87% of UK office stock is rated below an EPC of B.
No one wants to be left with a stranded asset that can’t be leased.
So there is now a growing market opportunity in taking older office buildings and turning a profit by making them more energy efficient – known as the ‘brown to green’ movement.
Boom-time for green
In fact, the market for environmentally-sound office buildings is booming – most of the large commercial property consultants agree that ‘green’ buildings are drawing in the prime rents.
According to Savills, 82% of the office developments in London that were pre-let in 2021 had a BREEAM rating of Very Good or better.
It is easy to be cynical about the big financial backers finally seeing the sustainable light.
But let’s be honest, for years the building services sector has aimed to prove that sustainable buildings are a more profitable asset, and now the message seems to be getting through.
Supported by MEES legislation, which has hit the right balance of carrot-and-stick for encouraging energy efficiency, we can expect to hear a growing number of tenants and investors demanding energy efficient and sustainable buildings.