Member Article

Possible Impact of Energy Act on Commercial Property

Government action is being demanded by the property sector to avoid a potential fall in the value of secondary commercial property if owners and occupiers fail to grasp the full implications of the Energy Act.

The Act continues to pose a real threat to the value of property portfolios. This is the key message that will be considered in a joint seminar today in Newcastle (17 April) between national commercial property consultancy, Lambert Smith Hampton (LSH) and KPMG, as the two firms encourage companies to start taking action.

The seminar will consider how the sustainability agenda is affecting the property industry at a time when soaring energy costs are already making a massive impact on business generally. Of the opinion that there are still too many question marks surrounding the Act, LSH has called on the Coalition to encourage companies to start taking action.

The Energy Act will change the economics of sustainability in the UK. It is the central pillar of the Coalition’s programme relating to energy and climate change, focuses on improving the energy efficiency of buildings and includes three major elements in the Green Deal, Energy Company Obligation and Private Rented Sector regulation.

Gayle Taylor, Director, Building Consultancy at LSH, a key speaker at the seminar, says:

“On 1 April 2018, it will be unlawful to let a UK commercial property with an Energy Performance Certificate (EPC) rating of F or G. The Energy Act therefore presents considerable risks and challenges to lenders, landlords and occupiers, with many properties potentially becoming impossible to let or occupy and heavily reduced in value.

“As much as 20 per cent of commercial stock could be affected. The implications of the Act are huge. There are still so many questions. It requires a great deal of financial analysis, weighing up values and looking at the various options. It will bring forward many refurbishments and redevelopments of buildings that are already teetering on the brink.

“Rent reviews and lease renewals will be affected. Properties with an F and G rating will become less desirable - so should that be taken into account now? Should there be reduced rates assessments? All of this flows from the impact upon values that this legislation may have.”

Tim Powner, Senior Surveyor, Agency at LSH’s Newcastle office, adds:

“The Government needs to clarify the implications of the Act and what support may come forward in the shape of a revised Green Deal for businesses. The timing of the Act may seem some way off but in commercial property terms it isn’t.

“People need to think ahead and take action now. As the clock ticks down to 2018 we may witness a fall in value with millions of pounds being wiped off the value of portfolios if owners and occupiers fail to make improvements in order to comply with the new legislation.”

The impact:

Lenders must

Understand the risks within their current loan portfolio
Consider EPC ratings when lending on properties – along with the impact on loan repayments

Landlords must

Understand the potential impact on value and return within their portfolios
Understand where the cost (and potential recoverability) of complying with the Energy Act lie
Asset manage their properties to mitigate the impact of the Energy Act over the period to April 2018

Occupiers must

Be aware of unforeseen costs associated with raising the EPC rating of a property that might be passed on to them by the Landlord

Understand whether the Energy Act will restrict their ability to sublet the building in future years, therefore reducing their flexibility to respond to business needs

www.lsh.co.uk

This was posted in Bdaily's Members' News section by Leigh Chelton .