Large swathes of London's office property risk becoming stranded assets as landlords run out of time to meet new energy efficiency standards. According to Robert Irving Burns, a property consultant, 78% of offices in Westminster and 71% in the City of London will fail to meet Minimum Energy Efficiency Standards (MEES) expected to take effect in the early 2030s.
Not only will achieving compliance require enormous capital expenditure, but current market capacity with labor shortages and financing constraints will make achieving the early 2030s deadline virtually impossible, said Antony Antoniou, chief executive of RIB.
The UK government has said that building owners in the country will need to meet tougher standards for energy efficiency in order to be able to lease commercial properties. That will likely mean having an Energy Performance Certificate (EPC) rating no lower than 'B' by the early 2030s.
Landlords will struggle in the new regulatory environment given the 'huge scope' of the challenges ahead, RIB said. In all, more than 12,000 offices across central London currently require 'significant' upgrades to comply with the new regulations.
The EPC deadline is being viewed by some investors as an opportunity to buy commercial real estate at a discount, invest in green refurbishments and sell or lease the upgraded property at a premium. Firms engaging in such deals include Blackstone Inc., Brookfield Asset Management Ltd. and Henderson Park Capital Partners.
