50% of inner London will be ‘unlettable’ from 2027, report warns

At least 50% of inner London commercial properties will be ‘unlettable’ from 2027 as new energy efficiency legislative changes loom, according to a new analysis by BNP Paribas. The real estate’s analysis of inner London data from the government’s non-domestic EPC register has highlighted the “urgent need” to upgrade stock against a backdrop of rising construction costs and the upcoming Domestic Minimum Energy Efficiency Standard (MEES) regulation changes. The data suggested that only 23% of stock is rated A+, A, or B and is currently fully MEES-compliant with current legislation. According to its review of the December 2022 figures, which is inclusive of buildings that are currently eligible for exemptions, it is estimated that nearly 8% of London commercial stock could be unlawful for new lettings and unlawful to let from April 2023 (Grade F & G). Another 43% could, under proposed MEES regulation changes, be unlawful to let from April 2027 (Grade D & E). This means that over 50% could, under proposed MEES regulation changes, be unlawful to let from April 2027 (Grade D, E, F & G), the analysis concludes. In addition, the probe revealed that just over 26% of commercial stock was rated C and could be unlawful to let from April 2030. From April 2023, it will be unlawful to continue to let a commercial property with an F or G EPC rating, even if the lease was granted before the MEES Regulations came into force in 2018. BNP Paribas said that UK commercial property and infrastructure construction costs have risen 15% year on year, posing the threat of the obsolescence of assets. Stephen Wolfe, head of commercial at BNP Paribas Real Estate, said: “The inflationary effects of post-pandemic shortages, the Ukraine war, and the cost-of-living crisis had driven up energy and material prices, leaving many landlords at a standstill with rating changes on the horizon. “Across London, the market and competition for occupiers is hot, putting the value of assets at an even greater threat. This is no time for landlords to sit on their hands – even super prime asset values are coming down, but further discounts will be expected if your space isn’t up to scratch.” Donna Rourke, head of ESG and sustainability at BNP Paribas Real Estate, said: “Many landlords were still in the dark about MEES changes. For others, there is a trade-off taking place with their occupiers on where the lease obligations lie in undertaking works. “It’s crucial at this time to get work done and get it right, and given that there are such disparities between ratings, ensuring you consult with an expert is more important than ever.” She added: “Improvements that we would recommend for those at a very minimum term include establishing responsibility first and foremost, ensuring your exemptions have been registered to secure the necessary time to make upgrades, and looking at modifications such as replacing boilers and windows, upgrading insulation, and adding solar panelling depending on budget. This can marginally support an upgrade in rating and can protect and support rents and occupancy in the process.”

50% of inner London will be ‘unlettable’ from 2027, report warns

The data suggested that only 23% of stock is rated A+, A, or B and is currently fully MEES-compliant with current legislation

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