Commercial Landlords – Priorities and Challenges in 2023

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06 June 2023

Nationwide research amongst property investors has revealed that one of their most significant challenges is the drive to upgrade their portfolio’s energy efficiency.

The Handelsbanken Professional Landlords Survey, based on research among UK investors with an average of 29 properties worth £14 million each, found that 59 per cent plan to expand their portfolios in the year ahead, with just 14 per cent expecting to sell some or all their properties.

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Energy Efficiency and the Minimum Energy Efficiency Standards

Changes to Minimum Energy Efficiency Standards (MEES) regulations have undoubtedly been front of mind for commercial landlords over the last year. As of April 2023, an extension of the standards prohibits landlords from leasing out commercial buildings with an EPC rating of below E. Fines for continuing to let a property from this date will amount to a minimum of £5,000, up to £150,000. This has meant a race to improve the energy efficiency of properties with replacement and insulation works.

Prior to the changes, more than half of the landlords surveyed planned to invest £100,000 or more over the next 12 months across their portfolio to improve energy efficiency. Well over half (57 per cent) were hopeful that all of their commercial properties would meet new standards on EPCs requiring a rating of E or above to be fit for letting by the deadline. A quarter (24 per cent) said they cannot afford to upgrade their portfolio in line with new regulations such as EPC ratings.

The survey also shows that landlords are looking to preserve cash and only invest in necessary improvements – or projects that will significantly enhance income streams.

Diversifying Into New Sectors

A large percentage of landlords reported that they were looking to diversify geographically. Three-fifths of those looking to increase their portfolio want to expand their portfolio into different areas.

London is still seen as the most attractive region, with commercial offices (43 per cent) and residential flats (41 per cent) seen as the most attractive investments.

Handelsbanken notes that the interest in offices is surprising given the uncertainty around hybrid working patterns and post-COVID office occupancy rates:

“However, as values have undergone a correction over  the past few years, many investors will likely be waiting  for opportunities to buy at reduced cost with a view  to longer term value creation, re-purposing assets (as Handelsbanken is seeing) and / or capitalising early on shifts in working patterns back towards more office usage.”

Areas seen as less attractive for property investment are Yorkshire and the Humber and the West Midlands, both attracting interest from only nine per cent of the sample.

Download the full 2023 Handelsbanken Professional Landlords Survey to find out more.

Picture: a photograph of a commercial building showing an open balcony area and windows. Image Credit: Unsplash

Article written by Ella Tansley | Published 06 June 2023

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