"Beyond these MEES requirements, there are growing expectations on both landlords and tenants to take action on climate change and nature, and these are beginning to affect the economics of the rental market"
Significant investment will be necessary to improve energy efficiency standards over the next 12 months according to portfolio landlords who were surveyed by Handelsbanken.
Professional investors with an average of 29 properties worth c £14 million took part in the research and revealed that 19% are planning to invest £500,000 or more over the next 12 months to renovate assets across their portfolios. 55% plan to invest £100,000 or more and all property business owners surveyed plan to invest at least £1,000.
The research found that a vast majority (92%) of the respondents expect the value of their portfolios to increase by at least 5% over the same period. With £500,000 representing roughly 3.5% of the average portfolio value of those surveyed, it is likely many will see the increase in value covering said investments.
Minimum Energy Efficiency Standards were first implemented in April 2018, but from 1 April this year, the regulations tightened further in England and Wales, ruling it unlawful for a landlord to continue letting a commercial property with an EPC rating of below E.
While 57% were optimistic regarding their commercial properties meeting these new standards by the deadline, 44% admitted they were only moderately familiar with the government’s plan to increase minimum EPC standards to B by 2030.
In 2021, the government consulted on increasing MEES for commercial lettings to EPC C by 2027 and EPC B by 2030, while tightening the system around exemptions.
For privately rented homes in England and Wales, the government consulted on raising MEES to EPC C, applying to new tenancies from 2025 and to all tenancies from 2028. It also suggested lifting the cap on landlords’ maximum spend from £3,500 to £10,000, based on the assumption that landlords will spend £4,700 per property to reach a C rating.
However, Energy Security and Net Zero Minister, Graham Stuart signalled recently that a final decision on these proposals would not come this year.
Richard Winder, Head of Sustainability at Handelsbanken, said: “Rolled up across a portfolio, these are not insignificant amounts, and for many investors represent a major step-up in capital expenditure. Beyond these MEES requirements, there are growing expectations on both landlords and tenants to take action on climate change and nature, and these are beginning to affect the economics of the rental market.”
Richard concluded: “Staying in line with EPC regulations and upgrading energy efficiency has become a priority for many customers, who are very aware of the associated challenges. We would encourage investors to look beyond the next compliance hurdle towards the broader sustainability transition underway, and to consider the efficiencies and opportunities that might be created by taking a long-term, strategic approach.”
