The Challenges of commercial retrofit
Published: 05/05/2024
Commercial Retrofit Outlook
According to the Climate Change Committee, the built environment accounts for roughly 40% of UK greenhouse gas emissions, with around 20% of this coming from non-domestic buildings.
Since 1st April 2023, all tenanted commercial property buildings across the UK, including shops, offices and warehouses, have required an energy performance certificate (EPC) rating of at least an E under the Minimum Energy Efficiency Standards (MEES). The government aims to increase the targets to a minimum of C by 2027 and B by 2030, however, research suggests that as much as 70% of commercial property space could be at risk of non-compliance in the not-too-distant future if these targets remain unchanged.
The office sector building stock is most at risk, where almost 80% of floor space is currently below the EPC B level and without action, many owners will be left vulnerable with un-lettable assets, as market demand for sustainable space grows in line with the tightening of MEES.
As the sector aims to shift towards the approach of upgrading existing building stock, instead of demolition and new-build, based on the existing UK building stock, the rate of retrofit would need to quadruple, to meet the 2030 target. To demonstrate the extent of retrofit needed, that would equate to an annual commercial space retrofit target of over 500 million sq ft.
With approximately 70% of the UK’s non-residential building stock constructed before the year 2000, if energy and carbon targets are to be achieved, and the UK’s 2050 net zero targets realised, significant energy efficiency and embodied carbon reductions are needed. Consequently, the majority of the sector will need to undergo some form of retrofit by 2050.
Commercial Retrofit Challenges
Compared with domestic building stock, the sheer range of commercial building types and uses, industrial, office space, retail, leisure centres, supermarkets, museums etc., result in significant complexity in the commercial sector in that ‘one size definitely does not fit all’ when it comes to retrofit.
To add further complexity, 85% of commercial property is rented. Leaseholders’ ability to undertake upgrade work is slim, and the chance of the landlord doing it is unlikely as they won’t benefit directly unless they see direct asset value or rental return increases. When a tenant pays directly for their energy consumption there is little incentive for landlords to invest in energy efficiency when the tenant would gain all the cost benefits. Understandably, for the investment to be beneficial, there must be a systemic reasoning where a retrofitted building is worth more, than a non-retrofitted building. At Harris Associates, we are aware of situations where rental returns can be in the region of 10-20% more for retrofitted buildings.
The most significant hurdle, as ever, is cost, yet the cost of inaction should be fully considered too. The fear of a costly upgrade that may not deliver the intended results, combined with the rising costs of borrowing, often provides barriers to retrofit. Whilst cost will always be a concern, this can be alleviated by strategy, leadership and specialist support on why the retrofit is necessary and how the project will get completed. Whilst the energy crisis over the past few years is considered negative by most, the rapid increase in cost has at least increased awareness of the operational costs of a commercial building which is a positive driver to change.
Key Actions to Increase Commercial Retrofit
Looking ahead, there is still a positive outlook for landlords, where decisions to repair or replace a roof in the short-term will not only significantly impact a building’s efficiency, but also ensure preparations have been made to future-proof towards EPC compliance.
Commercial landlords, owners and occupiers should be planning immediate and long-term strategies now, to work towards net zero targets. Given the vast range of building types that fall within the commercial sector, as the first step, specialist evaluations must be undertaken to understand which retrofit measures are appropriate for a given building or portfolio at a given time, and which are the most carbon and cost-effective energy performance upgrades.
For policy drivers to be effective in reducing operational carbon emissions, a performance-based policy framework is needed. Such a framework would also encourage energy optimisation, which is integral to maximising energy efficiency through retrofit. Optimisation depends on continued collaboration and sharing of data between landlords and occupiers to improve and maintain performance levels. Retrofit needs to be seen as an iterative process, rather than a standalone project, and demonstrates that upgrades should be planned and implemented to align with critical opportunities, such as lease and maintenance cycles.
Whilst potential disruption is certainly a challenge to overcome, the long-term benefits of a retrofit project will outweigh short-term interruptions to business. By properly planning with specialist multi-disciplinary consultant teams in place, plans can be made to minimise disruption and ensure organisations can continue to operate as normal during a retrofit project. Harris Associates has carried out a variety of retrofit projects for our clients, ensuring that the asset remains profitable and able to achieve the highest possible returns after the refurbishment. We can help with your upcoming project so contact us to see how we can ensure that your properties continue to be a valuable asset for all stakeholders.
Harris Associates is an award-winning RICS building and project consultancy providing advisory and project-led services across multiple sectors at every stage of a building's life cycle. We specialise in Compliance matters (including the requirements of the Building Safety Act), Building Surveying, Project Management, Landlord & Tenant matters Cost Management and are one of the premier providers of façade and cladding-related services, including PAS 9980 / FRAEWs, Construction Oversight / Clerk of Works services and the management of full façade remediation throughout the UK.
For more information on our services please contact Ben Stewart - Associate - Head of Commercial Consultancy & Projects bens@harrisassociatesuk.com 0203 195 0858.
Article by Ben Stewart
Press Contact:
Chioma Ibe
Email: chioma@harrisassociatesuk.com
Telephone: 0161 615 3679