Valuing Actual Building Performance in an EPC World

By Simon Crowe
15th September, 2021

Energy Performance of buildings has been on the agenda for over 13 years, since the introduction of Energy Performance Certificates in 2007, for residential buildings, and 2008 for non-residential buildings.  In this time the UK has only mandated a minimum energy performance level since 2018, and this doesn’t come into full affect for all certified property until 2023. That is some 15 years after the introduction of the scheme.  Worse still, only a Level E is required for compliance.

To be in-line with the UK’s legal commitments to limit climate temperature change to 1.5°C, all property needs to be performing at a level equivalent to an EPC B by 2030…This is an almighty challenge for the sector and requires a significant shift in the attitude of many property owners.

But not all is lost! We have the tools, skills, and technology to reduce energy waste, make buildings more efficient and to generate heat, cooling and power needs from renewable or low carbon sources.   Our challenge, however, is to get from the plant room to the boardroom so that executives and decision makers can be presented with clear business cases on why and how to make the necessary investments in their property portfolios.

The key word is ‘Performance’.  Many buildings with a good EPC rating of EPC B, actually perform worse than lower rated buildings.  As such, we can expect future legislation that will require owners to report on actual performance.  This performance is known as Energy Intensity and is measured in kilowatt hours of energy used per square meter per annum (kWh/m²/pa)

70 kWh/m²/pa is widely considered be in line with net zero.  Most commercial offices would be more than double that at around 200 kWh/m²/pa today.

If buildings perform at the required level, they will be less costly to run and be valued higher levels against their counterparts.  Buildings that are not compliant with new energy intensity targets can expect to be subject to fines and, if the current legislation is extended, will be prohibited from being leased.  As a former RICS Red Book valuer this would give me a bit of a headache when valuing a poor EPC rated building.

Action should be taken now to assess a property’s energy performance level and interventions identified to reduce waste, be more efficient and change systems low/zero carbon.  This can be done through building simulation software such as IES and Hevacomp.  The software can estimate costs and devise a program for planned preventative maintenance   With this information available a competent valuer will be able to see that there is an effective costed strategy in-place to keep a property ‘net zero compliant’ and value it accordingly.

When it comes to asset value at the point of sale, the building simulation, or ‘digital twin’ can demonstrate to potential purchasers that they are not acquiring a liability.   All changes can be modelled to demonstrate effectiveness and may be combined with other measures.  This can form the basis of the company investment business plans showing capital costs and lower operating costs.  Additionally, continued, ‘live’ building monitoring will enable an assets forecast performance to be achieved, each and every year.

Fund managers have a duty of care to investors to protect value. Poor energy performance and the lack of an action plan will result in some assets becoming stranded and value being heavily discounted.

 Should you need any assistance in property assessment and identifying and delivery of net zero strategies then do get in touch