Property investors heed tenants’ demands for low carbon buildings

Property investors have been driven by tenants to increase their sustainability improvements by 20% in the past year, research has found.

Both business and domestic tenants have been demanding lower-carbon buildings.

Findings from new research from Handelsbanken, which surveyed 200 property investors across the country showed 92% of those polled said that multiple tenants have asked for information on interventions that can cut emissions, such as heat pumps, onsite solar panels and electric vehicle (EV) charging points.

Demand for the implementation of these technologies was highest in North East England and North West England, the research found.

Three in five said most of their tenants are only seeking properties with an Energy Performance Certificate (EPC) rating of ‘C’ or higher with energy efficiency proving to be a more pressing concern for tenants in London which Handelsbanken attributes to them seeking to keep their costs low, with the capital more affected by rising bills.

Average annual budgets earmarked for environmental investments has increased from £106,222 last year to £128,000 this year.

Most investors are also now considering energy efficiency and onsite low-carbon technologies to a greater extent when deciding whether to develop or purchase properties.

There is currently a requirement in England for all commercial and residential properties to be rated EPC ‘E’ or higher before they can be eligible for the rental market. Plans were in place to raise the minimum threshold to EPC ‘C’ in 2028 for residential rentals, but Prime Minister Rishi Sunak scrapped this last September claiming he wanted to limit the cost of the UK’s net-zero transition to UK homes.

But the Government’s official climate change advisors warned it could make the net-zero transition more expensive in the long term.

The Handelsbanken survey found that most landlords would be in favour of the 2028 target being reinstated. In addition, three-quarters would support a longer-term target to raise the minimum EPC rating to the highest possible level A for commercial and residential lettings.

Handelsbanken’s UK head of sustainability Richard Winder said: “Property investors are clearly recognising the long-term value of maximising energy efficiency across their portfolios, and are eager to meet the highest sustainability standards to capitalise on the commercial benefits. Locking in value, reducing operating costs, and attracting and retaining tenants are all front of mind for investors.”

Syntegra MD Alan King said: “It is encouraging to see that property investors are listening and responding to tenants’ sustainability concerns with increased budgets allocated for appropriate improvements.

“It is important to acknowledge that many significant efficiency changes can be implemented at relatively low cost.

“Property investors can clearly see the business benefits of heeding tenants’ demands and improving their stock.

“We work with a large number of landlords and investors advising them on appropriate steps to take for maximum impact.”