Improving the energy efficiency of UK commercial real estate has been on the government’s net-zero agenda since before the launch of the ‘Ten Point Plan for a Green Industrial Revolution’ in 2020. Critically, it is not just about decarbonising the grid, but also about how to reduce the energy consumption of commercial real estate.
The hike in energy prices caused by the war in Ukraine, and the fact the government is currently subsidising UK businesses’ energy use, is once again focusing policymakers’ minds on the issue of energy efficiency in commercial buildings.
A performance-based rating system, where the energy efficiency of buildings is more clearly understood based on real data provided annually, will be at the heart of policy change in this area.
The NABERS rating system, which has been used in Australia for the past 10 years, is being rolled out in the UK by BRE as the first steps towards a performance-based approach.
The NABERS system requires an annual assessment of a building’s energy intensity when in use, closing the gaps between the design-based Energy Performance Certificate (EPC) scheme and the Energy Saving Opportunity Scheme (ESOS), where reporting takes place only every four years.
NABERS is considered effective because it is a performance ranking based on real-world data rather than ranking points being awarded by an assessor for meeting criteria. It is based on an annual assessment of the actual energy, water, waste and indoor environment performance of a building and provides a one to six star rating.
However, some NABERS UK assessments conducted on prime UK office buildings by Carbon Intelligence have resulted in building scores of only zero to three stars. Based on our high-level analysis, we predict this could be the case for over 95% of existing office buildings in the UK. This demonstrates that there is an energy performance gap even in premium real estate and that significant investment will be required to improve energy efficiency.
While there is work to do for landlords aiming for top-end performance-based energy efficiency scores, the investment will bring rewards.
Increasingly tenants will demand performance-based data assessments and look for four to six star NABERS-rated properties to help them meet their own decarbonisation goals. Therefore, properties with a higher rating will command a rental premium, investor appetite and higher valuations due to greater yields.
Research in 2021 from Knight Frank found that offices with NABERS Energy ratings of up to 4.5 stars were worth an average of 8% more than unrated buildings on a per square metre basis. This premium jumped up to 18% among offices with five- and six-star ratings.
A demonstration of strong energy efficiency performance could also provide access to cheaper debt through green finance. Banks increasingly require a decarbonisation plan for an asset and evidence of its exposure to physical and transitional risk, and this is provided by a high, or improving, NABERS rating.
Our NABERS UK assessment work has highlighted two particular areas where UK office buildings are currently falling short.
The first is poor energy performance compared with the NABERS UK benchmarks. This problem stems from the prevalence of natural gas heating systems and increased natural gas consumption in buildings due to the lingering effects of Covid-19 and reduced occupancy. The increase in gas consumption is due to longer ventilation times, reduced usage of heat recovery and the higher heating loads required for emptier buildings where fewer occupants mean there is a lower contribution from body heat.
The second area is related to the accuracy of information required to generate a NABERS rating. An exhaustive and externally validated submetering system for electricity and gas is critical to accurately develop a NABERS rating, yet only a minority of UK buildings have this in place.
To prepare for the world of performance-based energy rankings, landlords should consider where potential inefficiency hotspots are and assess where stock can be refurbished or upgraded to improve energy performance and stand out in the market to tenants and investors. In a world where energy costs are predicted to remain high, any investment in future-proofing buildings will also bring significant financial savings.
Oliver Light is director of commercial property at Carbon Intelligence, part of Accenture
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