Following consultation, in 2021 the government confirmed its intention to raise the Minimum Energy Efficiency Standard (MEES) for non-domestic buildings to EPC ‘B’ or above by 2030.
This will make it illegal to let any non-domestic property in England and Wales with an EPC of ‘C’ or lower, unless it benefits from specified exemptions.
This regulation reflects the UK government’s intent to drive sizeable reductions in real estate’s environmental impact to deliver on its legally binding net zero commitment by 2050.
The government estimates that there are 1.8 million non-domestic premises across England and Wales. Around 1.1 million (60%) of these are rented and therefore fall into the scope of MEES. Ensuring they all have an EPC of ‘B’ or above in less than eight years’ time is an ambitious target.
Since EPCs were introduced in 2008, only 119,000 EPCs of ‘B’ or higher have been issued. This is only 11% of the total stock that will be affected by the new requirement. So the number of ‘B’ or higher EPCs issued must increase significantly over the next eight years if all stock is to reach the 2030 target.
To explore whether the industry is on track to meet the target, CBRE has forecast EPC issuance up to 2030. This forecast does not account for exemptions. Over the last five years, issuance of ‘B’ or higher EPCs has been growing at the rate of 19% per year. That is a welcome acceleration, but we estimate that if we continue at this rate, 60% of all non-domestic stock would still have an EPC of ‘C’ or lower in 2030, rendering it unlettable.
The industry is clearly not on track to meet the 2030 target. So, what would it take? We calculate that issuance of EPC ‘B’ or higher certificates needs to grow by at least 41% each and every year if the 2030 target is to be met. This means that more than 340,000 EPCs ‘B’ or higher would need to be issued in 2030 alone, over 20 times more than were issued in 2021.
It sounds like we have a mountain to climb, but there is some evidence that we are climbing it. A similar forecast we shared with CBRE clients a year ago revealed that at the end of 2020, 70% of stock was on course to be unlettable by 2030. A year later, the figure is 60%, suggesting a marked acceleration in refurbishment.
However, much must still be done to meet the 2030 target. The average annual increase in issuance of EPC ‘B’ or higher certificates that we have seen over the last five years still needs to more than double. Landlords must more than double the speed at which they implement energy efficiency improvements to their buildings if they are to avoid the clear risk to rental income from 2030.
Kaela Fenn-Smith, Managing Director of ESG Consultancy, CBRE