More than one in 10 commercial properties are at risk of being unlettable in England and Wales next April when the Minimum Energy Efficiency Standards come into effect.
Data from the DCLG shows that 10.5% of all commercial space with an EPC rating – 373m sq ft – has a rating of F or G, falling below the threshold landlords need to achieve to let space under incoming regulations.
The London borough of Kensington and Chelsea is among the most vulnerable parts of the country, with 20.9% of its commercial stock, by square footage, rated F or G.
On average, London’s commercial stock is in a better position than the rest of the country. Its average weighted score is 83.5 – a mid-level D rating – compared to 96.6 – a low D – in England and Wales as a whole.
However, when it comes to offices, London has more extremes than the rest of the country: a higher percentage of both F and G space and B and above space. That means London’s landlords cannot ignore the regulations even if their average ratings might be higher than in the rest of the country.
Highway to the danger zone
If you are a landlord with no F or G-rated space, there is still a strong possibility that parts of your portfolio will be affected.
A study by Arbnco, a tech company that studies and models energy use in buildings, earlier this year showed 14% of D-rated space and 19% of E-rated space fell to an F or a G when re-rated.
Part of that is because EPC conventions have been updated five times since the standards were introduced in 2010. Regulations now impose stricter rules on emissions, while EPC conventions impose stricter rules on assessing buildings.
Andrew Maw, business development manager at Arbnco, said: “Each convention has provided clarity on assumptions or rules that an assessor can make.
“Assumptions that an assessor was able to make initially they can no longer make and be compliant with conventions.”
For example, if a building has been stripped to its base shell, assessors were initially allowed to make assumptions about the kind of heating or lighting the building had and justify that assumption. Later conventions clarified that an assessor would have to take the worst-case scenario and rate the building based on that.
As a rule of thumb, Maw said, any ratings from 2012 or before – more than 45% of all rated space in England and Wales – are likely to be unreliable. If your building’s EPC is a D or an E and is from more than five years ago, it is particularly vulnerable once the EPC expires after a decade.
That means there is a risk of a sudden rise in low-rated space starting in 2020 when the first EPCs’ validity ends.
Louise Ellison, head of sustainability at Hammerson, said the regulations are likely to only affect those who have not planned ahead. “Everyone has known since 2012 that the regulations have been coming,” she said. “There has been plenty of time for people to get behind it and sort out what they need to do.
“It’s not a concern as long as you have worked to plan for it. If you have done work to a building, then you’re applying more up-to-date building regulations and your fit-out will comply with an updated EPC.”
She said that since both EPCs and building regulations have become more stringent, there was little risk of new-builds or refurbished spaces falling below the threshold.
As a result, despite stricter regulations, the amount of F and G-rated space has fallen steadily as the amount of space rated B or above has risen.
However, for Ellison, the worry is that we do not necessarily know what the future holds for building regulations.
She said: “Where it becomes more of a concern is where we go from here. We’re not totally sure when the next upgrade of building regulations will be and when the next EPC model upgrade will be. At that point, there may well be a situation where your EPC rating – if it’s done on an upgraded model – will fall below where it is now even though it hasn’t changed.”
With the goal of zero-emission buildings on the horizon, those regulations will only move in one direction. Now is the time to look at your portfolio and make sure you are ready for that.