Landlords and occupiers are perennially searching for ways to reduce their carbon footprint and mitigate the impacts of climate change on their assets.
Knight Frank’s Sustainability Series Report reveals that central London offices with BREEAM ‘Outstanding’ certifications enjoy a 12.3% rental premium, while Knight Frank’s Active Capital Report shows that those with a BREEAM ‘Excellent’ rating benefit from a 10.5% sales premium.
On the other side of the coin, failure to upgrade assets’ sustainability credentials could create a fractured market, with climate laggards’ assets potentially becoming stranded as regulation and occupier requirements render poorly performing buildings obsolete.
Physical climate risk
Climate change physically threatens assets. Across the UK, property owners must prepare for more extreme weather events.
In line with proposals from the Task Force on Climate-related Financial Disclosures (TCFD), from April this year a subset of asset owners must disclose physical risks posed by climate change, which together with a new framework from the UK Green Building Council (UKGBC) provides a consistent methodology for measuring physical climate-related risks.
The increasing frequency of heatwaves is contributing to the upgrading of heating, ventilation and air conditioning systems and the resurgent popularity of natural ventilation, as is the case at the Bloomberg HQ in London. To protect against increased rainfall, owners are reinforcing and stress-testing roofs, while landlords are pre-empting natural disasters by drafting emergency plans.
These measures reflect the growing awareness of both the physical risks posed by climate change and the accompanying financial risks, as buildings potentially sustain damage or become uninsurable because of their vulnerability.
With the built environment accounting for approximately 40% of global emissions, legislators, industry bodies and occupiers are pressuring owners to improve their sustainability credentials and reduce emissions.
Building on the Minimum Energy Efficiency Standard (MEES) and the requirement for landlords to disclose their EPC ratings, stricter emissions regulations are coming into force. It is now unlawful to let a commercial property rated below EPC ‘E’, with plans mooted to prohibit letting a building below EPC ‘B’ by 2030.
In light of green premiums and brown discounts, companies may now refuse to consider space owned by landlords who are unable to demonstrate either a credible path to net zero or a comprehensive environmental strategy. More than 60 FTSE 100 companies have signed up to the United Nations’ Race to Zero campaign.
These regulatory and financial pressures combine to press landlords to combat their contribution to climate change, risking assets becoming stranded if they fail to meet increasingly demanding sustainability targets.
Property management role
Given the material risks of stranded assets and property damage, the industry must act decisively. Active property management can mitigate the physical, regulatory and financial risks of climate change.
The first step is to accurately measure baseline energy consumption and assets’ physical resilience. Without understanding these metrics, it’s impossible to cost the requisite improvements. Collecting the right data also allows clients, managers and consultants to use tools, such as the Carbon Risk Real Estate Monitor (CRREM), to calculate future stranding risk and identify ways to future-proof portfolios.
Managing agents, working with asset owners and facilities managers, have an important stewardship role to play in protecting and future-proofing clients’ assets. A significant part of this will be pushing for better data to improve the accuracy and quality of future modelling.
Increasingly, owners and agents are utilising data and smart building technology to identify assets’ weak spots and predict spikes in occupancy and energy use. Knight Frank, for example, has partnered with clean technology start-up LightFi to install temperature and occupancy sensors at clients’ properties to help them work toward their net zero targets. A 12-month trial in one of Knight Frank’s managed buildings has delivered expected savings of up to £150,000.
By leveraging predictive analytics, property managers can use live data to make adjustments to lighting levels, plant running times and space use, to reduce waste and pre-empt adverse weather events without sacrificing the quality of occupier experience.
This is one of many property management tools available to combat climate change. The sector must embrace technology and become even more data driven if it is to remain resilient in the face of these multivariant pressures.
Iain Moss is partner in Knight Frank’s property asset management team