Demand for industrial assets with the highest energy performance ratings is increasing, data from EG Radius suggests.
Analysis of all transactions on assets for which an energy performance certificate was available revealed a 6% increase in deals for those rated EPC A-B in 2022 versus 2021. Although modest, this increase is likely the start of a trend ahead of new minimum EPC requirements for commercial property coming into force in 2023, 2027 and 2030.
While some basic warehousing will be exempt, if a building has a heating system or integrated offices, it will be subject to the Minimum Energy Efficiency Standards from next year. And from 2027 landlords will be prohibited from entering into a new lease on a property if the EPC is D or below. The availability chart below illustrates the scale of the potential challenge facing landlords.
The data also suggests that deal decisions are being influenced by rising energy costs. The graph at the bottom of the page shows a marked rise in deals for assets with heat pumps in the quarters following Russia’s invasion of Ukraine and the global squeeze on gas prices.
Expert view How is the drive to more sustainable buildings changing the market?
Dan Jackson, director, Adroit Real Estate Advisors
We have seen the specification of new industrial and warehouse buildings continue to evolve with sustainability and wellness at the centre of that for some time. It is only more recently that some of these principles are being applied to the refurbishment of existing buildings. A number of our clients, including Legal & General and Mileway, have been at the forefront of this process.
Increasingly our institutional clients are looking to achieve an EPC grade B or higher on their refurbishment projects, which is a long way above the MEES requirements. Choosing to go above and beyond the average specification comes at a cost, but the improvements to the building are seen as long-term investments. The installation of heat pumps to heat and cool office space is one of the most obvious changes, removing the need for an active gas connection. Clients are also looking at EV charging capacity – both in terms of the number of chargers they provide and the speed of those chargers – to ensure that the buildings are able to accommodate the increasing number of EVs on the road.
Token PV installations have been a component of new-build specifications for some time, but a number of our institutional clients are now exploring ways to significantly increase the extent of the PV on the roof of existing buildings. The market is still finding its feet on how to share the benefit of PV with an occupier, but in the current market some of these installations have the capacity to deliver very meaningful savings and additional power at a time when spare capacity in the grid can be limited.
Adroit Real Estate Advisors has contributed more than 1.5m sq ft of industrial deals to EG Radius in 2022, view them at www.egi.co.uk/radiusdx/contributor-rankings-2022-deals
