Hugh Mulcahey, director of consulting for Gensler, discusses how poor energy performance is a ticking time-bomb for those lumbered with the wrong type of buildings. Two years ago Gensler’s report Faulty Towers anticipated the introduction of Energy Performance Certificates and pondered their impact on the office market. Now, as the certificates start to come into force, the ticking is becoming harder to ignore...
Certificates arrive
From May 2008 commercial buildings 10,000 m² or larger have to be rated for the energy efficiency of their design. By October this will extend to all commercial buildings. By then a certificate showing the operating efficiency will also be required. Some certificates will be required for all property transactions. Others will be on public display. Poor performing buildings will be there for all to see.
Property directors complacent?
Gensler recently surveyed 100 property professionals, half of whom were developers and half holders of large portfolios. This threw up some interesting results. Less than half (44%) of property directors thought energy efficiency would have a negative impact on the value of poorly rated commercial property. Property developers, on the other hand, could see things coming; 75% of them saw a negative impact for these buildings.
Mean not green
Direct questions were asked and honest answers given. Most respondents were more concerned about cost-control than the environment. In a similar vein 82% of businesses, when looking for property, would prefer to have efficient buildings than ones which are iconic. Overall, fitness for business was the top criterion used for selecting new accommodation.
Energy certificates arrive as the property market flounders
The UK office market is suffering the most troubled period since the downturn of the late 1980s. Property shares are seriously underperforming in comparison to the market as a whole and rents and capital returns are slipping. Construction levels remain buoyant whilst demand for space slips away. Parts of the office market can expect a glut of new, energy-efficient space.
A bad time to offload poor performing space
It was then less than ideal timing for Chancellor of the Exchequer to burden the property sector with empty rates bills. Occupiers and investors, both cost-conscious, have to face the consequences of hanging on to hard-to-let secondary property. If the government goes the whole hog with its energy performance policies these secondary buildings may be hit with yet higher rates bills in comparison to the new, more efficient accommodation currently under construction.
Corporate Social Responsibility – being seen to be green
Since Gensler’s Faulty Towers report was published more and more businesses have developed CSR policies. Some may be more sincere than others. None, however, can claim to be green when their Energy Performance Certificate says that they are not. Increased shareholder activism and the move to greater supply chain transparency make it harder for any organisation to escape scrutiny. Poor performing secondary offices will be beyond contemplation for many occupiers.
Cash is King
As Faulty Towers identified, saving money, not the environment, is the main motivator for managers when it comes to making property decisions. Just as the government is tightening the noose on inefficient buildings, market forces are pushing in the same direction. As the economy slows employers will have to make decisions about cutting staff or other costs. Oil prices stood at $75 per barrel. Now oil prices have reached $118 – even adjusted for inflation an all-time high. This will focus the minds of those making critical decisions in uncertain times. None of this bodes well for poor performing secondary buildings.
Click here to read Gensler's Faulty Towers report
