Property values at risk from new efficiency laws

£16.54bn could be wiped off the value of the UK’s commercial property portfolio due to upcoming energy legislation, claims a new research paper from tech developer CO2 Estates.

The paper reveals that that the capital value of commercial property could be reduced by up to 10 per cent due to the new rules, with the UK Government reporting that 19 per cent of all commercial property in England & Wales is in danger of not complying with the upcoming Minimum Energy Efficiency Standards (MEES) legislation.

The report, the first collaboration of its kind between arbitrators and solicitors, outlines the impact of the upcoming MEES legislation and estimates that a large proportion of the UK commercial property market is at risk.

The CO2 Estates research paper has found that properties not complying could see the capital value reduced by as much as 10 per cent, with the impact on the total UK value estimated to be as much as £16.54bn.

The news comes as a stark warning to the property industry as properties affected could become legally uninhabitable or see a significant change in their value.

The research paper highlights the potential effects of MEES on rent and capital values by examining the implications of the various related arguments valuers might raise at rent reviews or lease renewals value.

The paper was peer reviewed by former director & head of research at PRUPIM (now M&G Real Estate) Dr Paul McNamara OBE, RICS fellow Ian Feltham and chartered surveyor Sue Elwood. 

Pauline White, underwriting analyst at Zurich, supports collaborative research and says that she will “watch with interest” to see the outcome the energy legislation will have on the industry.

“It is clear there is a lack of awareness surrounding the MEES legislation. Bilfinger GVA’s ‘Green to Gold’ report highlighted that almost half (43 per cent) of property portfolio managers have not yet assessed their portfolio’s risk in relation to MEES,” she said.

“There is no doubt the MEES legislation will have an impact on commercial property portfolios. There will also be added confusion as there are different stances being taken by the Scottish Parliament and Westminster, which will only add complexity. Any research which highlights the need to act now and gives practical guidance on how to prepare for this issue is very welcome.”

Maureen Eisbrenner, managing director of CO2 Estates, added: “Landlords and tenants are being forced to reassess the energy performance of buildings because legislation has, for the first time, created a mechanism for monetising energy efficiency.”

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