Net Zero for Real Estate … why bother?
I started Low Carbon Alliance in January 2010.
I had just spent the previous 5 years at HBG/BAM Properties speculatively developing BREEAM Excellent “future-proofed” offices before the credit crunch curtailed my development career. However, I had learned enough in my pre-development career as a South-East office agent, to know that the majority of built office stock needed a targeted ‘energy’ refurbishment if it was to avoid a poor Energy Performance rating through its EPC.
10 years on and until 2023 it is still legal to be leasing an F or G rated commercial building! So who cares!? I’ll save the story of what we did instead for another blog, but as a business created with the agenda to improve the energy performance of commercial buildings, we have felt rather isolated!
So, what’s new about Net Zero. Not a lot really apart from the fact the stakes are higher and time is shorter.
What is Net Zero?
In a nutshell, it is the Government’s old target of 80% of 1990 levels, replaced by a target of net zero carbon emissions by 2050. The ‘net’ part will be reserved for sectors where the technology does not exist to make them zero. For Property, the aim is zero.
“But since not a lot has happened in the last 10 years why bother doing anything now?”, you ask. “My building will probably have a significant refurb or redevelopment between 2035 and 2050 anyway”…. Why bother?
Well, the answer is Legislation and Value Risk.
Fact: there is 8.5m sqft of F and G rated properties in Manchester today – in 2023 they will be uncompliant and liable to fines.
In addition, tenants will be able to have a field day on dilapidations claims, rent reviews, etc. And as for valuations, valuers are already under pressure to account for the risk associated with poor energy performance.
8,500,000 sq ft is a lot of real estate to re-assess let alone to improve. And then there is the question of “What level do you improve it to?” since currently there is no published target beyond 2023.
In less than 10 years, by 2030, all properties will need to have an energy performance standard equivalent to an EPC B if we are to remain on track to achieve the net zero target in 2050. Therefore, getting a building to an EPC E by 2023 whilst achieving compliance, does rather kick the can down the road, and will undoubtably result in another compliance issue within 5 years.
Now is the time to take stock…
Take the time now to understand your portfolio’s energy performance. Identify how you might get your assets to a B standard of performance and have an idea of the costs and how much can be built into planning preventative maintenance (PPM) programmes over the next 10 years. You will also be able to identify interim targets along the way to avoid pitfalls.
Bear in mind many occupiers will have their own net zero targets which will include the premises they work from, so there will be opportunities to collaborate with tenants to improve buildings, in design and performance in occupation.
Fail to prepare and you’re preparing to fail.