Up to 8% of inner London commercial property could be unlettable from April this year due to the MEES energy efficiency regulation changes, according to research from BNP Paribas Real Estate.
The firm reviewed the latest data [December 2022] on the government’s non-domestic EPC register and found a further 43% of stock could be unlettable from April 2027 and just over 26% of stock currently rated C could be unlawful to let from April 2030.
BNP Paribas Real Estate’s research found just 23% of inner London stock is fully MEES-compliant and rated A+, A or B. The new MEES regulations, which come into force on 1 April this year, apply to all privately rented property and make it an offence to continue to let commercial space with an EPC worse than E, even in the middle of a lease term.
Stephen Wolfe, head of commercial at BNP Paribas Real Estate, said: “The inflationary effects of post pandemic shortages, the Ukraine war, and the cost-of-living crisis have driven up energy and material prices, leaving many landlords at a standstill with rating changes on the horizon. Across London, the market and competition for occupiers is hot, putting the value of assets at an even greater threat. This is no time for landlords to sit on their hands, even super prime asset values are coming down, but further discounts will be expected if your space isn’t up to scratch.”
Donna Rourke, head of ESG and sustainability at BNP Paribas Real Estate, added: “Many landlords are still in the dark about MEES changes. For others, there is a trade-off taking place with their occupiers on where the lease obligations lie in undertaking works. It’s crucial at this time to get works done and get it right, and given that there are such disparities between ratings, ensuring you consult with an expert is more important than ever.
“Improvements that we would recommend for those at a very minimum term include establishing responsibility first and foremost, ensuring your exemptions have been registered to secure the necessary time to make upgrades, and looking at modifications such as replacing boilers and windows, upgrading insulation, and adding solar panelling dependant on budget. This can marginally support an upgrade in rating and can protect and support rents and occupancy in the process.”
