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Commercial landlords unprepared for incoming EPC legislation changes

Abbie Dickson-Davies

27 September 2022

Bridging

Improving the energy efficiency of Britain’s housing stock is a key part of the Governments manifesto pledge to tackle Climate Change. 

Despite this, 40% of commercial landlords are unaware that in just six months legislation is coming into force that requires commercial rented properties to have an EPC rating of at least E.

Research by Handelsbanken found that the average cost of the work required to bring entire portfolios up to scratch is expected to be £95,400.

A significant figure in normal times, let alone at a time when margins are being squeezed from all angles due to rate rises, material prices and the soaring cost of living.

What is the current situation?

Less than 1% of landlords surveyed have a clear plan in place to make sufficient improvements to their EPC ratings. A concerning statistic given that the regulations are due to come into force in less than 12 months.

So, what are the main reasons preventing landlords from making their portfolios more environmentally sustainable?

More than a quarter surveyed cited monetary reasons. With 15% believing they may not be able to access the finance required, and 12% claiming they don’t have the Capex to invest at this time.

This shows we have an important role to play as an industry to educate and support our clients through this transitory period on the path to net zero, and much more needs to be done.

The biggest barrier however seems to be a knowledge gap. 38% of respondents claim they don’t know how to make their property more sustainable.

So, how can you make energy efficiency improvements to my commercial property?

  1. Check your energy efficiency ratings here.
  2. Find out whether the regulations apply to your property. Some are exempt, for example – listed buildings where improvements would alter the character or appearance of the property.
  3. Review the recommendations in your energy efficiency report to give you an idea of what work you can complete to improve your rating, before getting a quote from a few trusted contractors.
  4. Speak to your specialist finance partner to get advice on your best options for capital raising, whether that’s via a further advance or short-term finance in the form of a bridging loan. You can compare commercial bridging finance here.
  5. Plan for the future. If you can raise enough capital you should aim for a rating of B, rather than E. The government has made clear their ambition to get all commercial stock up to a B by 2030. This will save you from having to disrupt your tenancies to carry out works again in the future, saving you additional loss of rental income and additional bills savings in the form of energy efficiency.

What are the most common planned improvements?

Installing insulation and a new energy efficient boiler appear to be viewed as the ‘quick wins’, but perhaps indicative of how difficult the improvements are perceived to be, 17% are simply planning to sell up.

Lowest on the list of planned improvements are solar panels although it remains to be seen whether that’s due to the hefty upfront investment required or a lack of faith in British sunshine.  

What will the impact on the market be?

Property continues to be seen as a safe haven for investors, and the challenging rate environment doesn’t appear to be deterring investors from adding to their portfolios. Half of all landlords surveyed for the report are planning to invest in new property.

However, energy efficiency will play a much bigger part in investment strategies going forward. 17% of investors are planning on offloading inefficient stock as they cannot afford the work required to bring their properties up to scratch, however a much higher proportion of respondents have acknowledged that the energy efficiency of their future investments will be a significant factor in their purchasing decisions.

35% of landlords have expressed that going forward, they will aim to only acquire newer, more energy efficient properties which will lead to difficulties selling older stock without having made EPC improvements first.

Ignoring the problem completely could lumber investors with useless stock so it’s vital that we arm investors with the tools and knowledge to action the improvements.

Industry and government must collaborate to do more to support landlords through what is likely to be a difficult transitory period to net zero.

Because, the bottom line is – making the changes needed to meet our climate change commitments is crucial.

Abbie Dickson-Davies

Marketing Manager

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