Offices May be Left Empty Due to Demand for Sustainable Buildings 

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25 May 2021

One of London's most significant property developers has commented that older office buildings that don't meet sustainability standards are likely to be left empty.

Nick Sanderson, Chief Financial Officer at Great Portland Estates, who own £2.5 billion of real estate in central London, told the Financial Times that commercial buildings that don't meet future legal minimum energy standards are at risk. He said: “We are starting to see signs of offices being stranded by the growing demands of occupiers and regulators for sustainable buildings.”

Companies' net-zero and corporate social responsibility goals mean that they will be committed to only investing in real estate that meets this. This will leave properties requiring more investment in bringing them up to modern environmental standards to become "stranded assets," he argued.

Great Portland Estates is spending £900 million on developing net-zero carbon workspaces.

Minimum Energy Efficiency Standards (MEES)

Minimum Energy Efficiency Standards (MEES) for commercial properties came into force in 2018, and will be expanded again in 2023 to apply to most commercial tenancies. From 2030, landlords will need to ensure their building complies with an EPC rating of B or above.

Those buildings that don't achieve this and require significant investment to do so, may be left to stagnate. Sanderson told the FT: “Valuers are already factoring this into their valuation work, you’re already seeing it coming through in rents and lenders are increasingly looking at sustainable finance. It could move quickly and it should move quickly.”

However, as Shane Betts, Head of Corporate Accounts at Integral UK wrote this year, the new rules apply to most commercial properties, but there are some exemptions:

"For example, the regulation does not apply to commercial leases running for less than six months or more than 99 years. There are also exemptions for specific properties, including some but not all listed buildings. It’s down to you as the landlord of a listed building or as a tenant subleasing the property to determine whether you are liable."

Picture: a photograph of Nick Sanderson. Image Credit: Great Portland Estates

Article written by Ella Tansley | Published 25 May 2021

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