One in five commercial properties at risk of devaluing

A paper undertaken by CO2 Estates has outlined the impact of the minimum energy efficiency standards (MEES) legislation.

The government has already found that 19% of all commercial property in England and Wales is in danger of not complying with the legislation with £16.5bn of the commercial property market at risk.

The research has also pointed out the 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.

Pauline White, underwriting analyst at Zurich, said it supported collaborative research and will watch with interest to see the impact of the legislation.

“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%) of property portfolio managers have not yet assessed their portfolio’s risk in relation to MEES.
 
“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.”

Maureen Eisbrenner, managing director of CO2 estates, said landlords and tenants are being forced to reassess the energy performance of buildings because legislation has created a mechanism for monetising energy efficiency.

“Our detailed case study suggests the possible effect of MEES regulations on value ranges from a sum slightly in excess of the cost of relevant energy efficiency improvements, to one considerably in excess of the cost of relevant energy efficiency improvements.

“Overall this could lead to a reduction of over 10% in the building’s capital value, which in the property world, could well be a significant sum.”

The MEES will require properties to achieve a minimum ‘E’ rating and will apply to new leases and renewals from April 2018.