Net positive rental boost for energy efficient buildings

Occupiers will pay a rental premium of more than 8% for the most energy efficient offices, according to exclusive new research using EG’s Radius Data Exchange database. Correlating Energy Performance Certification data with London offices data, EG has found that average rents increase by a whopping 14.3% with each jump up the EPC rating. Stripping out the top A rating, which can skew figures, this premium dips to 8.1% – representing a still significant potential uplift in income. While EPCs alone do not make a building “green” or “sustainable”, the rating system introduced in 2007 has forced landlords to look at how much energy the fabric of buildings wastes. Since April 2018, commercial landlords have been unable to renew tenancy agreements or lease new space in buildings that had an EPC rating of E or lower. Consultation is currently ongoing on whether this rating should be increased to B by 2020. EG’s data (available to read in full here) showed that 59% of A or B rated properties delivered a higher rental value than their C or D rated counterparts. This translated into average rental values for those higher bands of £61.20 per sq ft – some 8% higher than average rental values for C and D rated properties. The City Core and West End showed the greatest positive skew in rents versus EPC rating, with the Southern Fringe showing the smallest differential and the City Fringe bucking the trend completely and achieving higher rents on lower rated buildings. Energy efficient buildings were also likely to remain more occupied than their less efficient counterparts, according to EG’s analysis. The two highest bands showed a 92% occupancy rate, compared with 86% for the lower group. Lease lengths on tenancies within the A and B category were around one year longer on average than those with a C or D rating. EG’s analysis also indicates that occupiers are likely to pay a higher premium for a “green” or energy efficient building than they are for a connected building. A similar study by EG early last year, looking at 65 office buildings across central London with a WiredScore certification, showed that, on average, occupiers would pay 4.7% more for space in buildings with better digital connectivity. So, while EPCs cannot wholly be used to show the value of a “green” building as they are not in themselves a single measure of sustainability, EG’s research does prove that there is no evidential commercial downside to ensuring high-level energy performance. To send feedback, e-mail graham.shone@egi.co.uk or tweet @GShoneEG or @estatesgazette