Do Energy Investments Stack-Up?

shutterstock_159440948 copyCommercial building owners in Greater Manchester are not convinced that a ‘greener’ building will consistently see higher rents and occupancy rates, but they acknowledge that energy efficiency improvements will reduce operating costs.

Here at TinderBox, developers are telling us that the case for investing in better performing buildings over less-efficient buildings is still not being made convincingly. Furthermore, it is often only the big corporate renters, with plans to stay in one place for years to come and with strong CSR credentials, who are demanding high-performance buildings.

So, whilst commercial properties across Greater Manchester continue to struggle to charge the same rent per sq.ft. as seen in London, and with tenant demand for efficient buildings yet to gain momentum, what kind of energy investments can we expect to see from Greater Manchester’s commercial building owners?

There’s a number of factors at play. Firstly, from April 2018, it will be illegal to rent commercial properties that fail to achieve a minimum energy performance standard until improvements have been carried out. It is expected that this minimum standard will be equivalent to an Energy Performance Certificate (EPC) rating of E. Owners of properties with EPC ratings of F or G (some 75,000 commercial buildings in the UK) will, in some circumstances, no longer be able to let these properties until their energy efficiency has been improved. Will a market view emerge that views F and G premises as a risk, thereby driving owners to act sooner? Either way, we will ultimately see a significant change in levels of investment in the energy efficiency of these buildings.

Secondly, government forecasts show commercial electricity prices set to increase by 50% in the next ten years. UK energy policy hasn’t been up to scratch for quite some time and we’re now seeing a large chunk of older energy generation capacity being retired. Since such huge sums of investment are planned to address this (through shale gas, new nuclear, the Green Investment Bank and coal-plant conversion), energy costs are going to rise significantly to pay the infrastructure bill. We predict a continue upward trend in energy efficiency investments as owners, and especially operators, see the business case look increasingly attractive.

Finally, what of the much-vaunted ‘Northern Powerhouse’, HS2 (HS3?) and the advent of a Great Manchester mayor in 2017 (and the extra £2b that comes with it). Will these factors drive demand to such an extent that commercial property owners begin to invest in, and charge a premium for, better performing buildings?

What’s not in question is this: energy efficient improvements reduce operating costs. What are you waiting for? Seriously? Waiting is costing you money.

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