The list of dates for when non-domestic buildings have to meet increasing EPC ratings is fairly well known, and consequences for not meeting them are straightforward.
By April 2025, you will either be able to lease out a property with a valid EPC rating of ‘E’ and better, or you will not. From 2027, this will become a ‘C’ rating and then potentially from 2030, a ‘B’ rating.
This is undoubtedly going to create a two-tier marketplace because any properties not able to meet those standards will become worthless, apart from those opportunistic investors who will be able to buy cheap and invest in improvements.
The reality is that with environmental, social and governance (ESG) concerns so high up the corporate agenda, a two-tier property market, in which the value of sustainable property is wildly divergent from assets that are not sustainable, is going to be here much sooner than many in the market think.
We are increasingly coming across buyers, landlords and occupiers stipulating ‘B’ and above EPC ratings, BREEAM certifications and other ESG considerations for the properties they choose to invest in or occupy.
At the same time, both institutional funds and private investors are instructing cross-portfolio ESG appraisals and strategies so they can start repositioning their assets in line with the environmental and social demands of the market.
When Minimum Energy Efficiency Standards (MEES) legislation was first announced, we expected to see most landlords undertaking gradual improvements to meet minimum standards as and when required, allowing the market to adjust over a prolonged period of time.
Instead, we are finding that the largest real estate owners are acting now. We, therefore, have to expect to see them offloading the assets that they do not deem worth investing in and retrofitting sooner rather than later.
The divide between sustainable and non-sustainable assets is going to come sooner than many investors and landlords are ready for – or have anticipated – and a two-tier ESG marketplace is not far away.
Carl Sablon is director at Hollis