Property Valuation: The Practical Impact of ESG on the Valuation of Commercial Properties in the UK

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There has been much talk about the impact of Environmental, Social, and Governance (ESG) initiatives on the value of commercial property. Some of this is being driven by corporate demand seeking out properties that meet their own ESG requirements and in some cities this has led to a significant differential in rental and capital values between the best and the poorest buildings.

However, in some secondary and tertiary markets which are rental sensitive the government has recognised that the “stick” approach is required to eliminate or limit the use of energy inefficient buildings. The Minimum Energy Efficiency Standards (MEES) were introduced to achieve this aim by using the measure of Energy Performance Certificates (EPCs) as the metrics for restricting the legal use of poor performance buildings. In this regard the UK government has confirmed that the future trajectory of MEES for commercial property (in England and Wales) will mean a minimum EPC rating of C by 2027 and B by 2030.

That means that many secondary and tertiary buildings will be unlettable without the necessary retrofitting to meet the C or B requirement. This talk will look at:

• The impact on Market Value TODAY of the proposed MEES legislation
• The need for diligence in undertaking valuations so not to stray into the areas of professional expertise outside that of the valuer (e.g. retrofit cost estimations)
• The need to ensure due diligence when relying upon EPCs that may no longer correctly reflect the efficiency rating of the subject property
• The impact on property yields due to legislative uncertainty

 Nick French, Real Estate Valuation Theurgy, Property Education