Calls for clarity over Green Deal changes in the region
At law firm Foot Anstey’s Quarterly Property Forum yesterday, an expert panel discussed the Green Deal and asked: Is the South West ready to cope with the Energy Act 2011? Catherine Barnes reports.
The Green Deal, introduced by the Energy Act 2011, is the Government's flagship initiative for improving the energy efficiency of residential and commercial properties.
And, by no later than April 1 2018, landlords will be unable to let properties which do not achieve an anticipated minimum energy efficiency rating of E or above.
Just how far these new standards will impact upon property sector investors – and the businesses that operate within their premises – is still unclear, with many of the ground rules still to be defined and rubber-stamped by government.
But an expert panel told delegates attending the Property Forum Foot Anstey's Sutton Harbour headquarters in Plymouth, that where investors and businesses can take steps to future-proof their portfolios or premises, they should begin to do so now.
The panel of speakers, which was introduced by Foot Anstey real estate partner, Richard Walford, was made up of Patrick Brown, associate director of the British Property Forum, Tim Davis, who heads the Bristol office of global real estate advisors DTZ, and Paul Maryan, director of sustainability at planning consultancy Peter Brett Associates. Joining them in taking questions from the floor was Midas executive director Andrew Johnston.
Uncertainties over new legislature arising from the act are still manifold.
At the moment, it is unclear whether current energy efficient standards will in fact apply, by the time that the Energy Act comes into play in 2018. Buildings attaining the minimum "E" rating in 2012 could be in danger of not achieving more stringent guidelines closer to 2018 – and beyond.
"An E rated building today could be an F tomorrow," warned Mr Brown. "We are calling for those ratings to be fixed to the floor."
Meanwhile, according to a 2010 Housing Condition Survey, it is estimated that 18 per cent of existing commercial property stock and 17 per cent of residential properties are F or G rated, already falling below the minimum energy efficiency standard that will become mandatory.
Professionals also warn that differentials between existing energy efficiency surveys can vary dramatically, according to the professional commissioned to carry out the work, as well as the sum invested in the procedure to ensure full and detailed feedback of where improvements can be made.
The British Property Forum is currently petitioning government to clarify where responsibility will lie for enforcing guidelines to ensure buildings meet the baseline energy efficiency standards.
Mr Brown asked: "Will the Energy Performance Certificate methodology be improved, to allow it to be used as a regulatory barometer?"
The Government is anticipated to announce in October how the Green Deal's energy efficiency retrofit payments will enable property owners to fulfil targets, with the cost of necessary improvements to properties tagged onto energy bills. Who, ultimately, will be compliant, will depend upon the terms of the lease.
What's clear, is that some property owners will find it more straightforward to divest their portfolios of properties unlikely to meet energy efficiency targets – or at a cost which makes the option unviable over the lifetime of the building.
Tim Davis said: "Investors and landlords need to make the correct decision of whether to refurbish or to dispose of the properties in their portfolio.
"Shorter lease lengths, increased use of break clauses means investors should review current stock to determine poor performing properties."
Landlords may also begin to evaluate whether the tenant business's plant and processes themselves are the cause of reduced energy efficiency ratings – and act accordingly.
While the terms of the Green Deal upon the commercial sector are still being fine-tuned, Mr Davis said landlords may look to adding terms to leases, that will require tenant fit-outs to take the EPC rating into account.
The disposal of older properties – often found in town centres – that become unviable in 2018, could create a property shortfall among the thousands of small businesses that are tenanted within such facilities, that lack the finance to relocate to units that comply with regulations – and on which the commercial value looks set to rise.
Those property owners and developers who effectively make their portfolio watertight – and airtight – through energy efficient modifications or building processes are likely to see increased demand – and a rise in market value. And there is potential for them to create further value-added through investment in green energy technology; quickly paying off their investment and generating a new income stream through selling in eco-electricity to the National Grid.
Mr Walford said that while the Green Deal could be a "win-win, win-win" situation in terms of addressing fuel poverty, the development of a sustainable green energy industry and the emergence of the UK – and South West in particular – as a leader within the emerging renewables technology sector, there were still many questions to be addressed prior to the act coming into play.
Tim Davis, of DTZ, said: "With energy prices in the long term likely to increase above inflation, combined with a growing amount of legislation and political interest in the area of sustainability, investors in both commercial property and the private residential rented sector need to be more proactive with their assets and not wait for changes to be imposed.
"The Energy Act 2011 will have significant ramifications for the UK property market.
"From 2018 it will be unlawful to transact a non domestic property with a poor energy efficiency rating, assumed at present to be an Energy Performance Certificate with a rating of E or worse. Recent research conducted by DTZ, which reviewed over 1,500 EPC's undertaken since 2009 throughout the UK, revealed that the act could affect up to 42 per cent of all commercial assets if no action is taken by property owners.
"Occupiers are increasingly being driven by cost control and, as a result, more energy efficient buildings will increasingly have a commercial advantage.
"We anticipate that a green premium, in terms of capital value/rental value, is likely to materialise for such buildings.
"Property owners need to appraise their portfolios, strategically investing in assets where viable, but selling the obsolete ones before the market re-prices them as the detail of forthcoming secondary legislation which follows the Energy Act emerges."
Patrick Brown said: "The BPF has been calling on the Government to begin consulting on the detail behind its plans for minimum energy efficiency standards.
"Currently there is a lack of clarity over how they will work causing confusion in the market, and with the average lease length currently standing at 5.3 years for commercial property, leases which will run through April 2018 are being negotiated right now. There are scant detail on the precise mechanics.
"Some of the issues requiring clarity include: Which Energy Performance Certificate (EPC) grades will form the starting threshold for minimum standards, and whether the Government aspires to tighten standards over time? And what exemptions – if any – will be provided?
"And, when minimum standards come into effect, will they catch existing leases – or just new ones?"
Paul Maryan said that while the Energy Act is being used by government to achieve more efficient use of energy in buildings, it is taking very much a 'stick' approach to make this happen.
"Any 'carrots' remain focused on low carbon energy supply," he said. "This creates major opportunities for the property sector to use these 'carrots' as the basis of a new approach to low carbon energy supply which can lead to more stable (and potentially lower) energy costs.
"This has enormous value in the current market. The South West is ideally placed in terms of low carbon energy resource, giving the potential to differentiate the region and make it the location of choice for major commercial organisations, especially those who see the value of low carbon energy supply to their business.
"The big question is if the property sector in the South West is ready to make these opportunities into reality?"