The Future of Sustainability In The Commercial Real Estate Sector

The Future of Sustainability In The Commercial Real Estate Sector: A Summary of the 7th Annual 40 Percent Symposium


Read this post if:

  • you had wanted to attend the Symposium but were not able to make it
  • you’d like a quick overview of the key points of discussion throughout the day
  • you heard something about the link between frothy beer and the value of data (?!)
  • you’re interested in the feedback of this year’s attendees
  • you’d like to express your interest in attending the next Symposium in April 2018

Introduction

On Thursday 3rd November, approximately 60 senior commercial real estate and sustainability professionals gathered at the Regent Hotel in Berlin for the 7th Annual 40 Percent Symposium.

Founded in 2011 by John Pike, the aim of the Symposium is to create a one-day, high-quality conference which gives delegates a complete overview of current sustainability issues as they affect commercial property both from an investor’s and occupier’s perspective.

joh-pike“To attend a 40 Percent Symposium is to join a committed and thoughtful audience of like-minded property and investment professionals who understand the need to deliver a sustainable future in property. The 2016 Symposium was our most successful event yet.”

John Pike, Founder and Managing Director, The 40 Percent Symposium

After having been held in London in 2015, this year saw the Symposium make a welcome return to Germany, where the event has always been held in high esteem, not least for the fact that it manages to attract attendees from a broader spread of countries.

This year, we were delighted to welcome attendees from more than 7 countries including the UK, Germany, Sweden, Finland, Portugal, The Netherlands and the USA, all eager to network with their peers and share best practices.


Keynote Address

“Let’s pay more attention to the optimisation of existing buildings’ energy performance…”

The day was kicked off by Martin Brühl, Managing Director of Union Investment and RICS Past President 2015/2016. Mr Brühl delivered a catchy keynote address in which he stressed the importance of optimising the energy performance of existing buildings in addition to the weight that is often placed on the credentials of new builds.

Martin Brühl“Today’s 40 Percent Symposium will mark one essential step towards making sustainability our business as usual… Each of us can contribute to that today, embed what we learn from others in our business routine and tell our clients about it. So our work is cut out and we must succeed. This should be an exciting day.”

Martin Brühl, Managing Director, Union Investment


The Outlook for Political Change in the CRE Sector

The first session of the day saw four experts exploring the following topics:

  • European Union carbon dioxide targets and an outlook on the corresponding regulation changes in Europe and Germany.
  • Thoughts on opportunities and challenges of green policy in the commercial real estate sector.
  • Market perspectives on landlord and tenant relationships and legal implications. Examples beyond pure regulation.
  • How to get tenants on board. Launch of a new sustainability survey to get feedback from real estate users.

The audience showed their engagement early on, with several questions to the panel on the social side of sustainability, including the UK’s Modern Slavery Act, on which one of our sustainability consultants, Louise Russell, has written this informative and well-received blog.

Attendees were also particularly keen to hear more about the work that ECE has done across its shopping centres, which includes collaborating with Philips to develop a new lightbulb.


Economics, Opportunities and Risks, from an Investor Perspective

Next up, these four experts delivered engaging presentations on the following topics:

  • The investors’ long-term risk: without green investment, performance improvement is not possible.
  • How does the enhancement of health and wellbeing in the built environment affect value in real estate?
  • How can the GRESB Assessment support the industry to optimise risk/return profiles of real asset investments?
  • Update on market value of green building certified assets in Europe.

The audience was particularly eager to ask as many questions as possible to Dr. Whitney Austin Gray, Executive Director of Research and Innovation at Delos, following her presentation on health and wellbeing. Health and wellbeing is a topic that is gaining ever more interest each week; is it ‘the next sustainability’?

GRESB was also discussed at length during the panel session and the networking breaks, with many attendees asking us about the support we have provided on multiple GRESB submissions through the combination of our consultancy expertise and our sustainability management software, SIERA.

kay-killman“I thoroughly enjoyed the 40 Percent Symposium, especially the well-balanced mix of investors, developers and other organizations.”

Kay Killman, President, German Green Building Association


Best Practice From Across Europe, Focusing on Innovation

The final session of the day, split into two parts, saw these seven speakers present on the following subject matter:

  • 2050 climate goals for apartment buildings built and realised in 2014.
  • Spondability: Sponda’s signature of responsibility, which takes economic, social and environmental aspects into consideration.
  • Creating green value.
  • How data delivers sustainable value.
  • Turning global challenges into business opportunities.
  • The underestimated energy saving potential: premature pump replacement in existing buildings.
  • Harnessing consumer power.

In many ways, this session is what the 40 Symposium is all about – attendees learning about best practices from their peers.

The audience remained highly engaged right up until the close of the final presentation, keen to learn more about everything from water pump replacements to how seriously Sponda, the Finnish real estate investment company, takes CSR measures.

It was also our chance to shine, with our Managing Director, Chris Bennett, delivering a highly entertaining presentation on the value of data to commercial real estate firms. If you’d like to learn more about the relationship between frothy beer and well-managed sustainability data, you’ll have to get in touch! To whet your appetite, you can watch a short clip of Chris’ presentation in the embedded Tweet below.

frank-rader“For my colleagues and I, this was a fantastic event; well organised and with top content. We had many interesting discussions!”

Frank Räder, Head of Customer Training, Grundfos


The 40 Percent Symposium Will Return in April 2018!

We’re delighted with how well this year’s Symposium was received by all attendees. So much so, in fact, that a placeholder date has already been set for the next one in April 2018!

Based on the excellent feedback of attendees saying that they valued being able to get to Berlin very easily and the opportunity to meet colleagues from all over Europe and beyond, the Symposium will once again be held in Berlin.

Here’s what our partner, Dr. Birgit Memminger-Rieve has to say:

birgitmemminger-rieveTo host the 40 Percent Symposium and bring it back to Germany as an international sustainability conference has been a great experience. Very many thanks to John Pike, who moderated the conference with ease and charm and to the EMA Events team that made sure that our schedule was followed with no delays. I’ve talked to a lot of attendees to get their feedback, which I’d like to summarize here.

The Regent Hotel was a great venue and everyone felt at ease during the day, enjoying and discussing versatile and interesting topics with great speakers from various countries. They say they appreciated having this international symposium in Berlin, giving them insight to the actual political framework, current sustainability studies, and best practice experiences. More practical examples would be good to learn about next time. They also emphasized the excellent networking opportunity during the breaks and at the drinks reception in the evening.

All in all, we’re looking forward to the next Symposium in April 2018.”

Dr. Birgit Memminger-Rieve, Managing Partner, ES EnviroSustain – German consultancy partner to EVORA


To register your interest in attending the next 40 Percent Symposium in Berlin in April 2018, click here now.


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Legal Update: Heat Network Regulations

The Department for Business, Energy & Industrial Strategy (BEIS) has confirmed that no regulatory action will be taken for non-compliance with key requirements set out in the Heat Network (Metering and Billing) Regulations 2014; namely, in relation to ‘heat suppliers’ testing whether it is cost-effective to fit heat meters in multi-occupancy buildings, and where appropriate, fitting them by 31 December 2016.  However, it must also be noted that the remaining requirements in the regulations are unaffected (for example in relation to installation of heat meters at newly constructed buildings).

BEIS does, however, intend to launch a public consultation on a new cost effectiveness tool and accompanying regulatory amendments in early 2017.

About the Heat Network Regulations

A heat supplier obligated under the regulations is defined as a person (or organisation) who supplies and charges for the supply of heating, cooling or hot water to a final customer, through either communal heating or a district heating network.

Whoever is supplying the end user with heat is classed as a heat supplier. This includes the supply of heat as part of a package – i.e. through a service contract. The contract does not need to explicitly mention the supply of heat. Shared / multi-let offices and shopping centres where heating and/or chilled water is provided to more than one tenant in a building are identified as obligated examples within the guidance document.

Requirements

Heat suppliers were required to notify the National Measurement Office of the existence of heat networks by 31st December 2015.

In addition to notification, heat suppliers were required to test whether it is cost-effective to fit heat meters in multi-occupancy buildings, and where appropriate, fit them by 31 December 2016.

Regulatory Update

The cost effectiveness tool is currently being revised by the department for Business, Energy and Industrial Strategy (BEIS). Therefore, pending the revision of the tool it is advised that no further assessments should be undertaken.

“The Financial Conduct Authority (FCA) has confirmed that it would not be appropriate for them (the FCA) to impose fines or other disciplinary measures in respect of a breach of the requirement within the heat network (metering and billing) regulations 2014 (as amended), that certain heat suppliers must test whether it is cost-effective to fit heat meters in multi-occupancy buildings, and where appropriate, fit them by 31 December 2016.”

“Furthermore, it is unlikely that the FCA would take other regulatory action (where a heat supplier was separately regulated by the FCA) if the only non-compliance was in relation to the requirement to test for and fit meters where cost effective. As such, it is not considered necessary for a heat supplier to inform the FCA if it has been unable to meet this requirement.”

What next?

Following a planned public consultation, BEIS intend to launch the new cost effectiveness tool and accompanying regulatory amendments later in 2017.

EVORA will be watching updates on regulatory amendments in 2017 and can assist you in maintaining your compliance.

[clickToTweet tweet=”Discover how EVORA can support you with the Heat Network Regulations.” quote=”Discover how EVORA can support you with the Heat Network Regulations.”]

Questions? Please don’t hesitate to get in touch.


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World Envoys Reach Agreement To Phase Out HFCs

Almost 200 nations reached an agreement in Kigali, Rwanda, last weekend to amend the Montreal Protocol on Substances that Deplete the Ozone Layer and introduce a global phase-out of hydro-fluorocarbon (HFC) refrigerants.

HFCs were introduced to limit damage to the ozone layer and replace refrigerants that have now been phased out – including R22. However, they have much greater levels of global warming potential (GWP).

EVORA: World Envoys Reach Agreement To Phase Out HFCs

Image Source: DW – http://www.dw.com/en/nearly-200-nations-reach-agreement-to-phase-out-hfc-greenhouse-gases/a-36049841

Developed countries are required to cap and phase down HFCs starting in 2019. This international agreement is legally binding and strengthens existing commitments. The UK, for example, had already committed to phase down HFC use by 79% by 2030, starting in 2015. Timetables for developing countries are different.

What does this mean in the UK?

HFC refrigerant gases are used in air conditioning systems. Widely used HFC refrigerants for commercial air conditioning systems include R-410A, R-407C and R-134a. Phase down will largely impact on supply of new equipment, but it is expected that the phase out will be extended to include the supply of new refrigerant for servicing existing equipment.

Timescales are long term, however, EVORA recommends that real estate firms develop a plan to compile a record of landlord-controlled HFC refrigerants used across their portfolios. Firms are advised to also check with their maintenance providers that they are fully compliant with the current F Gas regulations, which require regular refrigerant leak testing and up-to-date records to be kept.


Questions? Please don’t hesitate to get in touch.


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SIERA Sustainability Software: By Numbers [An Infographic]

Leading Sustainability Software for the Real Estate World

SIERA, our proprietary sustainability management software, has, until recently, been an inadvertently well-kept secret. As a result, “This is great, why haven’t I seen it before?” is one of the most common questions we are asked when demoing the software to our commercial real estate prospects.

Well, no longer will SIERA remain a secret!

We are actively demoing the software to multiple businesses with assets across the globe. What’s more, our clients who are already using it are reaping the rewards of having all their environmental data in one secure database, with powerful validation tools ensuring the accuracy and completeness of their data. SIERA has proved particularly popular with regards to its GRESB reporting automation capabilities. Read more about that here.

We have put together the infographic below to provide a visual overview of some of SIERA’s key figures. The numbers are, of course, changing each month as we add more clients’ assets to the system, but at least this provides a bit of a starting point. We’re very proud of SIERA and what it has achieved for our clients so far.

Would you like a demo of SIERA at your convenience?
Please don’t hesitate to get in touch.


Click the image to view it in full size

(You will also be able to save it as a PDF should you wish to.)

siera-by-numbers-infographic-leading-sustainability-software-for-the-real-estate-world


Further SIERA reading:


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The Power of Data Visualisation in Profiling MEES Risks and Opportunities

My colleague Ed Gabbitas recently wrote a blog post titled ‘Why MEES is Changing Behaviour Two Years Ahead of the Compliance Date’. In that post, Ed highlighted some of the challenges around the accuracy and variable quality of some EPCs as well as some broader implications for the sector. In light of the potential adverse impact that MEES could have on some key value drivers, it is imperative that property owners have a clear fund or portfolio view of their EPC risks.

The obvious starting point is to understand where the gaps are. Fortunately, many organisations have started this process already by looking at the extent of EPCs most at risk across their funds / portfolios. A prerequisite to carrying out this analysis is having a single, central database that stores all of the key information in a consistent format.

Those companies that have participated in GRESB will know well that to be able to easily answer the questions relating to extent of portfolio coverage relies on all the key parameters such as EPC scores and an accurate record of associated floor area covered being stored in a consistent format to easily get an aggregated view. If this is stored in a multitude of tenancy schedule spreadsheets it can be an extremely time-consuming process in ensuring that the fund picture is accurate. For voluntary reporting such as GRESB, the effect of getting it wrong might be a dent in scores. However, in the context of MEES, the risks are potentially much more significant – i.e. the inability to let space and therefore negatively impact on income streams.

This is something that we have been able to help a number of clients with through the use of SIERA – our proprietary sustainability management software – to reduce manual intervention and improve the efficiency of storing EPC information in a systematic manner so that information is not overlooked.

Assuming that you have all your EPC information in one place the next step is to prioritise actions for managing the potential risks. This may include identifying which EPCs should be re-modelled for example or identifying particular units or properties for improvement to ensure they are MEES compliant. Regardless of what specific actions are taken, an efficient means of profiling EPCs will help make the task easier.

In the case of one of our clients we profiled the assets of a fund to identify the lettable space most at risk of MEES; the units in the example below represented around 69% of rental income and 51% of total lettable area at a particular asset, which ‘could’ have been un-lettable from April 2018 unless action was taken. We carried out an extensive EPC re-modelling exercise to produce new EPCs.

The Power of Data Visualisation in Profiling MEES Risks and Opportunities - Image 1

The before and after scenarios are markedly different, showing a really good result. This example is just one improvement case study amongst a fund of where we had profiled many EPCs using the powerful visualisation tools in SIERA. For example with SIERA’s EPC profiling module, you can edit key visualisations of EPCs against ERV and lease expiry to dial in on particular sets of assets/units and create reports. Both our consultants and clients have benefitted massively from the efficiency of being able to very easily profile against key parameters to customise analyses to inform decision making.

Simplified sample EPC Profile Analysis from SIERA:

The Power of Data Visualisation in Profiling MEES Risks and Opportunities - Image 2

EPC rating by lease expiry.

 

The Power of Data Visualisation in Profiling MEES Risks and Opportunities - Image 3

Rental income by EPC rating.

To speak to our experts about MEES, SIERA, or any other topics, please don’t hesitate to get in touch.


Further reading:


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Scotland’s Approach to Building Energy Efficiency

This post originally appeared here on the UKGBC blog, to which we are regular contributors.


 

Scotland’s ‘competitor’ to the much publicised Minimum Energy Efficiency Standards (MEES), due to be introduced in England and Wales in 2018, has been finalised and will be introduced next month. The approach is markedly different to the plans in place for the rest of the UK.

The scheme in summary

In Scotland, building owners who plan to sell or lease space will need to comply with the new regulations for units over 1,000 square metres in size, from 1 September 2016[1].  An energy performance certificate (EPC) is required, as usual.  However, an Action Plan must also be established to identify energy saving opportunities.  Action Plans can be issued by qualified Section 63 Advisors (many EPC assessors are in the process of gaining this additional accreditation) who use approved software to calculate improvements.  The software has been developed to consider the feasibility of seven improvement opportunities.

  • Draught-stripping windows and doors
  • Upgrading lighting controls
  • Adding central timer controls to the heating system
  • Insulating hot water storage
  • Improving lighting
  • Improving insulation
  • Replacing boilers if existing units are older than 15 years

Following completion of the Action Plan the owner can then decide to implement the relevant measures or produce an operational energy rating in the form of a Display Energy Certificate (and maintain this on an annual basis). Owners have 12 months to decide which approach to take and have a further 3.5 years to implement improvements if progression of the Action Plan is chosen as the approach.

Exemptions

It is also important to note that buildings constructed in accordance with a building warrant applied for on or after 4 March 2002 are exempt (for now)[2] – although there is a likelihood that this date will change over time to bring more assets into the scheme.  In many cases, exemption due to date of construction will be clear.  However, this rule has already raised questions.

For example, will a recently refurbished unit located in a building constructed prior to 2002 be exempt?

Consideration will need to be made on a case-by-case basis. The software used to generate EPCs and Action Plans will identify whether the unit meets the exemption criteria or not. As a result, the first part of the process, the EPC assessment, will need to be completed before the requirement for an Action Plan can be confirmed.

The Challenges

The approach, at first glance, seems practical.

Seven sensible improvement measures have been identified that, if feasible, need to be considered for implementation, and the bar has been set at the relatively low level of 2002 building warrant standards.  However, practical challenges remain.

Take the following scenario:

An owner wants to let an old (pre 2002) and large (over 1,000 square metre) office building on a Full Repairing and Insuring (FRI) basis.  The EPC and subsequent Action Plan will be produced.  To continue to comply, the owner will need to produce either a Display Energy Certificate or progress the implementation of the Action Plan.  However, lease structures for most FRI buildings will prevent compliance (as the owner will not have access to data and will not be able to implement improvements). 

To ensure compliance, owners of such buildings will need to ensure lease clauses are in place that require single-let FRI tenants to provide energy performance data to owners, as a minimum.

As a priority, landlords should review their portfolios and develop compliance plans to prevent problems in future.

[1] Units under 1,000 square metres will still need to produce an EPC, but will not be required to progress further.

[2] Transactions that are exempt from requiring an EPC are also exempt from additional action plan requirements.


If you have any questions, please don’t hesitate to get in touch.


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CRC and the Energy Efficiency Legislative Landscape: The Road Ahead

The deadline for Phase 2, Year 2 of the Carbon Reduction Commitment (CRC) Scheme is tomorrow! Here at EVORA, we are helping our clients to submit their CRC annual reports by tomorrow’s deadline. However, there are many challenges to come.

What’s happening with the energy efficiency legislative landscape?

It has been announced that the Department of Energy and Climate Change will close and energy will be incorporated into a new Department for Business, Energy and Industrial Strategy. This has raised many questions, one of which is: Does this Governmental move indicate a reduced focus on energy efficiency, or a move towards true integration of energy for the benefit of all?

For now, we have to consider CRC, which itself is due to be scrapped after the end of Phase 2 (the 2018/19 year). Incidentally, revenue generated by CRC will be replaced by an increase in the climate change levy.

I can understand the scrapping of CRC. It sits within a disjointed and confused legislative landscape made up of many elements, including the Climate Change Levy (CCL), the Energy Savings Opportunity Scheme (ESOS) and mandatory GHG reporting, with more to come in the form of Minimum Energy Efficiency Standards (MEES). The Government has promised a simpler energy policy focused on delivering change.

We will have to wait and see how this pans out.

How can business manage its way through compliance requirements and drive improvement?

At EVORA, we recommend that consideration is given to the development of a systems approach to energy and environmental management as a convenient and effective way to achieving performance improvement and minimising risks. Our Director, Paul Sutcliffe, recommended in his recent UK-GBC article that further consideration is given to the roll out of ISO 50001 systems.

If you have any further questions, please do not hesitate to get in touch for more information.


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Recapping The Energy Institute’s ‘Energy Management-Meeting the Standard’ Conference

Attending conferences can sometimes be a hit and miss affair in this industry. After frequenting a few of these events, both in my current role as a sustainability consultant and in my previous career as an environmental manager in the construction sector, I am all too wary of how easily these events can turn into a series of sales pitches provided by various companies presenting.

I needn’t have worried, the conference, run by the Energy Institute, involved a series of half hour talks from various sectors on a wide variety of energy related topics, all of which were 100% relevant to EVORA and more importantly, our clients.

The talks provided valuable snapshots of the great work being undertaken under the umbrella of energy efficiency and also provided some solid information on the impacts of regulations and policies.

Here is a summary of key points.

 

Article 8 Across Europe

Dr Martin Krusker of Siemens was asked, “who has implemented the requirements of Article 8 the best across Europe?”

Answer, the UK. The opinion of ESOS across the UK varies widely (some organisations considered it a pure legal compliance requirement whilst others saw a real opportunity to drive improvement) and, as a result, I was not expecting this response. From my experience, I felt that many of the smaller organisations just captured by the scheme found it a burden. There is also the issue, the white elephant in the room, that nobody has to action anything identified within ESOS audits….

The Environment Agency were consistently vocal in their opinion that thousands of businesses were going to be non-compliant – even though, as far as I’m aware there have been no penalties served, as yet, on these businesses.

However, it seems that in comparison to the remainder of Europe the UK did a stand-out job. Nevertheless, it is clear we should not rest on our achievements, there is plenty to improve upon during the next compliance phase.

 

Progression with ISO50001

The ISO50001 Standard is to undergo review to align with the high level structure of other recently revised standards (ISO14001:2015 and ISO9001:2015). The expectation is that this will be issued in January 2019 with a three-year implementation period.  If you want to get involved in the process of re-drafting the ISO50001 Standard, keep your eyes peeled for further updates on the EVORA website.

In Germany there is a tax incentive scheme for businesses which introduce ISO50001. Take-up of ISO50001 in Germany is therefore much higher than the rest of the world, Germany on its own accounts for more than 50% of all ISO50001 certifications. With Germany already being ahead of the UK in terms of renewable energy and pro-active energy policies it is yet another example of innovative policy making that results in German companies taking more responsibility in managing their energy consumption. I hope someday that the UK government will take as positive a stance as their German counterparts.

 

Energy Markets and Private Wire Systems

Talking about energy market costs culminated in a discussion on the potential of private wire systems to negate the continual rise of energy cost ‘add-ons’.

Historically, energy costs were made up of 60% the actual cost of a unit of energy with 40% added on for extras such as availability charges, demand charges, feed in tariff, climate change levy, distribution costs and so on. However, we are now moving to a point where this proportion is reversed, with 60% of energy costs being from ‘add-ons’, therefore the fluctuation in the actual cost of energy is making up less than half of the total cost of energy.

A private wire system removes these ‘add-ons’. Although only generally applicable to large demand energy users located in feasible areas, the opportunity to tap into local renewable energy projects in order to save costs and use a renewable supply is becoming an attractive option to some. This could become a viable option for some businesses if the proportion of ‘add-ons’ in energy costs continue to grow towards an unsustainable level.

 

Thoughts for the Future

These were just three of many talking points of the day. Although the next ESOS compliance deadline may seem like a distant worry, this event served as a reminder of the importance in determining how you can get the best out of a proactive energy management strategy (and value for money!)

However, as sustainability professionals we must lead by example and the venue was a timely reminder that there really is a long way to go before sustainability is naturally embedded. The conference room included multiple large halogen lights giving off vast amounts of heat combatted by huge industrial fans for cooling leading to a stuffy energy intensive bubble. A considerable faux pas for an energy management conference! Additionally, the travel information provided prior to the event listed detailed car directions, car parking facilities and airport links (with details of taxi journey lengths) before even mentioning train or bus options. Without joined up thinking and understanding, sustainability will never become the norm.

The event lasted for a day, but the topics discussed will be key themes in the sustainability arena for years to come.

For information on the services EVORA can provide please do not hesitate to get in touch today.


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

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.

 

SIERA Infographic 1 JPG

 

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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An Introduction to SIERA [Infographic]

 

SIERA Sustainability Software Infographic 1 Final JPG


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