Up to one fifth of commercial properties could be unsellable by 201818th April 2013

Elderly and inefficient warehouses and offices, which fail to comply with the stringent requirements of the Energy Act due to come into force in five years’ time could leave landlords with a portfolio of unuseable - and unsellable - properties, according to Mike Bull from Colliers International.

At a briefing organised by the sustainability team at Colliers International’s Broad Quay HQ, Bristol business chiefs were told that 1 April 2018 could be Domesday for up to one fifth of all commercial properties in the UK as landlords struggle to make them compliant with the regulations.

Mike Bull from Colliers International’s Investment property management, said landlords should be looking at unloading dinosaur properties within their portfolios before it was too late.
 
Standard lease lengths of between three and five years will mean that leases signed in the next few months will be affected and landlords needed to fully understand the cost implications.

Mike Bull, who also heads up Colliers International’s national sustainability taskforce, said the Government was relying on Energy Performance certificates – and spiralling energy prices - to encourage greater efficiency across the sector.

“With effect from 1 April 2018 it will be unlawful to let buildings with an EPC rating of F or G. When you consider around 20 per cent of our commercial buildings already fall within those categories it’s clear the commercial sector is facing a major challenge.

“In addition, some buildings currently scraping in on an E rating may be re-assessed in 2018 and could find themselves relegated to the F category.”

Areas of predominantly older stock would become even more marginalised over the next five years while top quality new buildings would continue to attract the lion’s share of tenants.

Ironically, the problem could be particularly acute in Bath where the predominance of period buildings might lead to serious cost issues as businesses attempt to upgrade their EPC ratings.

“Although Bath is packed with characterful and attractive period office buildings, new build offices are fairly few and far between. In places like this landlords might be advised to take advantage of the green deals on offer to improve a building’s energy efficiency now.”

Richard Hill from Grant Latcham solicitors in Bristol said landlords across the commercial sectors should be proactive rather than simply await change in five years’ time.

Hill said: “Make no mistake this is Doomsday for some buildings. We can expect to see buyers and potential occupiers put off by E, F and G ratings as we move toward 2018.

“Although we anticipate a building’s EPC rating will go into the mix when new leases are being negotiated we are advising clients to identify and sell the dinosaurs before the markets re-price.”

“Certain people are going to find themselves priced out of the market when these changes take effect. The sector is sitting on the cusp of major changes and clients could expect to see more and more clauses in their leases on energy matters."

The meeting was told that more people would be inclined to increase the efficiency of their buildings by taking advantage of the Green Deal, which allows people to borrow money to pay for environmentally friendly improvements such as insulation.
Green Deal rates of between five and seven per cent would become far more cost effective as energy prices spiral over the next decade and beyond.

Mike Bull said: “There are clearly major implications for both landlords and tenants as the commercial property sector adapts to the changes due to come into effect in five years’ time.

“In the meantime we are advising our clients to review their EPC rating ensuring they are up to date and accurate. We recommend that landlords target a D rating or better to allow a degree of comfort going forward.”