From 26 October 2021, the Ultra Low Emission Zone (ULEZ) in London will be expanding to the north and south circular roads.

Carl Sablon - MK

Carl Sablon

While the ULEZ is an important step in cleaning up our air as soon as possible, there is no denying it will have a significant impact on landlords and businesses.

At Hollis, we analysed data by Datscha and found that 2,197 commercial properties will be affected by the expansion of the boundary, as businesses are forced to replace vehicles that do not comply with emissions standards or pay additional charges to enter the extended zone. The average size of properties within the new zone is 22,664 sq ft, and the total size of commercial property to be impacted is 49.8m sq ft.

Industrial units such as trading centres and building merchants feature heavily. Being based in inner London offers good access to road networks for potential clients and these are the businesses most likely to be affected by the new ULEZ boundary. Other prominent occupiers include 3PL and catering companies.

Under ULEZ, small and large vans (up to 3.5 tonnes) will need to comply with the Euro IV minimum emission standard for petrol vehicles and the Euro VI minimum emission standard for diesel vehicles, otherwise they will need to pay an additional £12.50 a day to enter the zone, increasing to a £160 penalty charge if not paid.

HGVs (over 3.5 tonnes) need to comply with Euro VI engines standards, otherwise they need to pay an additional £100 a day to enter, increasing to £1,000 if they fail to pay within a certain time.

While the charges are commercially viable for large national companies that can absorb the cost of upgrading their fleet of vehicles as part of a wider sustainability campaign, small businesses will likely suffer as they struggle to cover the additional costs and feel the impact of declining footfall.

For some businesses, relocation in the wake of new zoning is a necessity and we are already seeing several of our clients proactively relocating to areas outside the zone. With demand for space within the ULEZ likely to drop, buildings just outside the zone are likely to see an increase in uptake and, as a result, rising rents. The increase in relocations will also give rise to dilapidation claims and refurbishments.

The relocation of occupiers can be expensive for the tenant and the landlord, as both parties need to consider dilapidations, and the additional capital expenditure for the landlord to refurbish the property for what the local market requires.

Many landlords are already getting ahead of ULEZ’s potential impact by adjusting their offering. As part of refurbishment projects, some landlords are now installing electric vehicle charging points, while others are going one step further by achieving net zero carbon.

Ultimately, the expansion of ULEZ is a positive step forward in reducing vehicle emissions in the capital, and it also forces landlords and tenants to consider their company policies and look to reduce their carbon footprint. However, I expect to see a disruption in rents in micro areas on the new boundary line.

Carl Sablon is partner at Hollis