Property investors boosting sustainability budgets due to tenant pressure, survey finds

This is a headline finding of new research from Handelsbanken, which surveyed 200 property investors across the country. There was a fairly even split between real estate investors and property managers, and between commercial and domestic properties.

More than nine in ten (92%) of those polled said that multiple tenants have asked for information on interventions that can cut emissions, such as heat pumps, onsite solar panels and electric vehicle (EV) charging points. Demand for these technologies was found to be highest in North East England and North West England.

Additionally, three in five said most of their tenants are only seeking properties with an Energy Performance Certificate (EPC) rating of ‘C’ or higher. Energy efficiency is a more pressing concern for tenants in London. Handelsbanken stipulates that this is because they are seeking to keep their costs low, with the capital more acutely affected by rising bills.

Handelsbanken found that property investors are taking note of the business opportunities that could arise for catering to increasingly sustainability-minded tenants. The value of average annual budgets earmarked for environmental investments has increased from £106,222 last year to £128,000 this time around.

Most investors are also now factoring in energy efficiency and onsite low-carbon technologies to a greater extent when deciding whether to develop or acquire properties.

Energy efficiency debate

There is currently a requirement in England for all commercial and residential properties to be rated EPC ‘E’ or higher before they are placed on the rental market. Plans were in place to raise the minimum threshold to EPC ‘C’ in 2028 for residential rentals, but Prime Minister Rishi Sunak scrapped this last September.

Sunak claimed the change was intended to limit the cost of the UK’s net-zero transition to UK homes. But the Government’s official climate advisors warned that it could make the transition more risky and expensive over the long-term.

It remains to be seen whether a new target will be implemented, and what could happen for non-domestic rental properties, after the general election next month.

The Handelsbanken survey found that most landlords would be in favour of the 2028 target being reinstated. Furthermore, three-quarters would support a longer-term target to raise the minimum EPC rating to A for commercial and residential lettings – the highest level achievable.

Handelsbanken’s UK head of sustainability Richard Winder said: “Property investors are clearly recognising the long-term value of maximising energy efficiency across their portfolios, and are eager to meet the highest sustainability standards to capitalise on the commercial benefits. Locking in value, reducing operating costs, and attracting and retaining tenants are all front of mind for investors.”

Related article: International real estate investors shunning UK for markets with stronger green policies

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