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The UK voted to leave the European Union: What next for the sustainable built environment?

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The UK has voted to leave the European Union and significant changes are set to take place for the sustainable built environment. The landscape is uncertain and the scale and reach of the impacts are still unclear.

It is necessary to identify and minimise the risks presented by the economic and political uncertainty. Nonetheless, the business case for sustainability should not be side-lined.

Major transformations in environmental policy are expected. The legislative landscape will be crucial for supporting the established link between property value and sustainability performance. Legislation linked to the EU Energy Performance of Buildings Directive (EPBD) are expected to be affected the most. This includes the Display Energy Certificates (DECs) and the Energy Savings Opportunity Scheme, which are linked to the Energy Efficiency Directive (EED).

The future is complex and there will be many opportunities and risks. Our main objective is to keep our clients informed and provide the most appropriate support, foster collaboration and help raise the business case for sustainability.

If you have any questions or would like to discuss any sustainability issues, please contact our experts today, who will be happy to advise you on the best course of action.

 

Photo: Gary Ullah Flick Creative Commons

 

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Why MEES is Changing Behaviour Two Years Ahead of the Compliance Date

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The Minimum Energy Efficiency Standards (MEES) regulations will make it unlawful from April 2018 to let buildings in England and Wales which do not achieve a minimum Energy Performance Certificate (EPC) rating of E. This will initially apply to new lettings and renewals only, but from 2023 will apply to all existing leases as well.

John Alker, Director of Policy and Communications at the UKGBC stated that MEES is “The single most significant piece of legislation to affect our existing building stock in a generation”. I would certainly agree with this on a number of levels.

But doesn’t MEES have its flaws?

YES!

Firstly, the minimum standard is based on an EPC rating but as we know, EPCs are renowned for their lack of correlation to actual energy performance and that, as a commoditised service, quality diminished significantly putting into question the accuracy and usefulness of many EPCs.  Note that the Government is aware of this issue and has entered into a consultation process designed to improve quality assurance of EPC assessments.

Secondly, EPC calculations are linked to building regulations, so as regulations get tougher, so does the ability to achieve a decent rating making MEES a moving target. Many have suggested that EPCs produced pre 2011, if re-modelled now, could be up to two ratings lower. If correct, this could potentially see in excess of 30% of building stock, at risk to 2018 regulations.

However, this is not what we are experiencing, primarily due to the poor quality of many existing EPCs. As an example, EVORA recently re-evaluated shopping centre units with an EPC ratings E – G, where the rental value of these units exceeded 75% of the total ERV of the scheme. The original EPCs were of poor quality, as shown through the use of defaults. By completing accurate EPCs, EVORA was able to secure at least a D rating and therefore mitigating MEES risks for the next 10 years.

It is also not yet clear what the future trajectory will be for the minimum standard, although it is possible that this will be raised come 2023. This makes refurbishment planning challenging for landlords, who generally work on ten year cycles.

Finally, there are a number of exemptions, not least the requirement to have the consent all of tenants, which is surely a get out of jail free card for any landlord.

MEES and Behavioural Change

Despite these flaws and challenges we are seeing a significant change in behaviour well in advance of the 2018 compliance date. This shouldn’t be a surprise. MEES has the real potential to adversely impact many key value drivers including occupancy, rental growth, liquidity, cost of finance and yield on sale.

Greater Rigour Required

As such, it is focusing minds to ensure EPCs are carried out professionally and with rigour, whilst taking steps to understand portfolio risk supported by an appropriate strategy to mitigate.

As an example, more sophisticated energy modelling is being undertaken using Dynamic Simulation software packages to ensure the accuracy of EPCs and to better understand the opportunities to improve both energy performance and the EPC rating. We are currently supporting Hines on a major refurbishment in Canary Wharf, providing energy simulation modelling to ensure the design intent improves both the energy efficiency of the building as well as the EPC rating.

Understanding your MEES Risk

In addition, we are regularly using sophisticated sustainability management software such as SIERA on behalf of our clients, to analyse EPC ratings, lease events and ERVs together to understand and profile MEES risk.

Collaboration is going to be Essential

Ironically, rather than being a get out of jail free card, lack of consent by the occupiers, possibly due to business interruption issues, could impact on asset management plans to improve the overall EPC rating to ensure future marketability and to prevent possible price chipping on sale. This is also an issue for FRI assets where there is no legal right to gain access, but improvements may be necessary to achieve a minimum rating, prior to lease expiry to enable the property to be marketed to minimise the risk of void periods. These issues will drive the need for greater collaboration between landlord and tenant.

Improvement vs repairing obligations and what about dilapidations…?

Collaboration will also be key if the landlord intends to replace M&E equipment with more energy efficient kit, ahead of the end of its useful life, and is seeking the tenants to share in the costs or to recover fully through the service charge. The cost benefits to the tenants will need to be clearly articulated to get their engagement.

Staying on the theme of replacing kit, this is likely to have an impact on dilapidations where the landlord may require more energy efficient equipment to meet MEES regulations but the issue of improvement vs repairing obligations will arise. Again, collaboration and forward discussions will be key.

New lease terms?

New lease terms (notice my omission of ‘green’ which generally makes tenants and letting agents run a mile) could become the norm, specifically to bar alterations that adversely affect an EPC rating. But policing such terms will be a challenge.  Does this, for example, mean that every planned tenant fit-out or even minor alteration, has to be fully modelled to assess the impact on the EPC rating – possibly.

There are many other issues and challenges associated with the impending MEES legislation and whilst it is far from perfect it offers an opportunity to improve the energy efficiency and resilience of your assets and engage in long term communication and collaboration with your tenants. Surely that can’t be a bad thing!

How can EVORA support you?

EVORA can support you in understanding the upcoming MEES regulations, help you profile your MEES risk using our sustainability management software, SIERA and provide professional support in delivering and improving the EPC ratings for your assets.

EVORA is participating in a select group to provide industry guidance to DECC on the future of MEES regulations.

For further information or guidance on MEES please contact Ed Gabbitas: egabbitas@evoraglobal.com or 07557 529 106

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EU Referendum and the Environment: The Final Few Days

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On Thursday the 23rd of June, the UK will decide on its membership of the European Union. Thus far, it has been a closely fought debate with arguments presented by the Brexit and Remain campaigns. One key discussion point is the future of the legislative landscape for the environmental sector. This touches on the built environment and wildlife, as well as climate change targets. On the whole, there is consensus that voters lacked information throughout the period leading up to the referendum to take sustainability and the environmental issues into account.

Drawing on a survey of key professionals within the industry, the latest webinar held by the Institute of Environmental Management and Assessment (IEMA) suggested that:

  • Sustainability professionals thought the EU provides greater stability for environmental policy;
  • The UK is a leader on environmental and climate change policy;
  • The EU presents opportunities for the circular economy and fosters collaboration

In a similar way, the Institute of European Environmental Policy (IEEP) concluded in its latest report, “Potential Policy and Environmental Implications for the UK of a departure from the EU” that the UK’s environmental policy has been partly influenced by its EU membership. The IEEP argued that Brexit would trigger uncertainty unless the UK had alternatives in place. Going forward, the UK will need to review its environmental policy and significant transformations are set to take place.

The legislative landscape will be crucial to spur investment within the industry. In relation to real estate, links between property value and sustainability performance have already been established and this realisation will be further supported through environmental legislation. The UK Green Building Council (UK-GBC) has recently commented on the possible impacts of the outcome of the EU referendum, with those requirements linked to the EU Energy Performance of Buildings Directive (EPBD) expected to be affected the most. This includes the Display Energy Certificates (DECs) and the Energy Savings Opportunity Scheme, which are linked to the Energy Efficiency Directive (EED).

What is most certain are the unknown consequences of the EU referendum. Environmental and climate change consequences for the built environment and relevant legislation will be key areas of change.

Burns et al (2016) presents a summary of the scenarios and uncertainty levels. It is clear that the leave scenario presents the greatest uncertainty, with the potential of key transformations in the UK’s environmental policy. It seems that sustainability professionals must await on the side-lines as the debate draws to a close.

Table 1 The EU Referendum and the UK Environment (Burns et al, 2016)

Whatever the outcome, specific legislation within the UK, such as the Minimum Energy Efficiency Standard (MEES) coupled with the potential of a reformed legislative landscape means that all businesses operating within the built environment must be prepared for all eventualities. Sustainability and productivity within the built environment are valued globally not least in the business sense, but on a social level as well.

As for EVORA, regardless of the outcome, we are well positioned to navigate our clients through the post-EU referendum environment. With offices in the UK and Europe and a depth of knowledge within the industry, we will continue to help our clients manage their risks and realise the business case for sustainability.

If you have any questions or would like to discuss any sustainability issues, please contact our experts today, who will be happy to advise you on the best course of action.

Links:

http://www.iema.net/event-reports/2016/06/16/the-environment-and-the-eu-referendum/

http://www.ieep.eu/assets/2000/IEEP_Brexit_2016.pdf

http://ukandeu.ac.uk/wp-content/uploads/2016/04/Executive-summary-EU-referendum-UK-environment.pdf

Burns, C., A. Jordan, V. Gravey, N. Berny, S. Bulmer, N. Carter, R. Cowell, J. Dutton, B. Moore S. Oberthür, S. Owens, T. Rayner, J. Scott and B. Stewart (2016) The EU Referendum and the UK Environment: An Expert Review. How has EU membership affected the UK and what might change in the event of a vote to Remain or Leave? Executive Summary

http://www.ukgbc.org/news/uk-gbc-comment-eu-referendum

(Photo: Rock Cohen, Flickr Creative Commons)

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An Introduction to SIERA [Infographic]

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Publication of Energy Performance Certificate (EPC) Data

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In an effort to make more data publicly available, the Department for Communities and Local Government will be releasing cumulative EPC data for domestic and non-domestic buildings.

Until 30th June 2016, owners and occupiers of commercial property who hold EPCs are able to opt-out of the data release should they not want their EPC information to be released to the public.

However, EVORA advises against blanket opt-outs, without careful consideration and defined reasons, on the following grounds:

  • Each EPC must be opted out individually – the opt-out process becomes very time consuming.
  • The reuse of addresses for other purposes (including marketing) is prohibited.
  • The information is valuable to researchers, whose goal will be to advise on the effectiveness of the regime and will help inform future government policy and the real estate industry is crying out for better informed Government Policy.

Information is still available via the national non-domestic EPC register (where it is possible to search for EPCs on an asset-by-asset basis – so interested parties can still check for individual asset EPCs).

Data was previously released in January 2015. You can download the data to see how it is displayed here.

Holders of EPCs can opt-out of the data release and can do so by visiting this site.

More information on this subject is provided here.

For further information or guidance please contact Paul Sutcliffe: psutcliffe@evoraglobal.com or 07557 529 104.

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Leading Sustainability Software, SIERA, Automates GRESB Reporting For Second Year Running

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SIERA, our market-leading web-based sustainability management software, is delivering massive efficiencies again this year in the reporting of the GRESB performance indicator data.

Visit our GRESB support service page.

Sophisticated modelling capability in SIERA simplifies the GRESB reporting process enormously, pushing out both the Performance Indicator reports in standard GRESB format as well as producing the GRESB Asset Report, which can be interfaced directly into the GRESB portal, eliminating the need for laborious and time consuming manual intervention and data input.

In 2015, SIERA was one of the few technology platforms directly transferring data into the GRESB portal. This year will see SIERA delivering the automation of data transfer into GRESB for 41 submissions and more than €20bn of assets, with clients including Deutsche Asset Management, Schroder Real Estate, Rockspring, and AEW.

Charlotte Jacques, Head of Sustainability, Schroder Real Estate comments:

“We chose SIERA because it has been specifically designed for the commercial real estate investment market.

It is practical and intuitive to use and helps simplify the many complexities of sustainability analysis and reporting, especially GRESB.”

SIERA is EVORA’s proprietary sustainability software, uniquely developed specifically for the real estate investment market. The software supports in the delivery of a number of regulatory and voluntary reporting requirements including CRC, GRESB, INREV and EPRA, as well as providing broader environmental and energy monitoring and performance analysis at both portfolio and asset level.

Our role as strategic sustainability advisors to real estate firms means that our insight has focused the development of SIERA to be finely tuned to our clients’ needs and changing market trends, making it a unique and practical product for the real estate sector.

As GRESB Premier Partners, for both our pan-European sustainability consultancy and technology platform, we are able to provide our clients with the best possible support in the completion of their GRESB survey.

To learn more about SIERA and how it would completely transform your sustainability data capture and reporting, please do not hesitate to get in touch today.

GRESB Premier PartnerAs a GRESB Real Estate Premier Partner, we are perfectly positioned to provide GRESB support. View our official Premier Partner profile.

We can work with you to complete the submission and understand your scoring, as well as develop a sustainability plan that will improve your future GRESB performance and align with your organisation’s key environmental objectives.