Money, money, money: energy efficiency and how you didn't expect it to affect you

Published by Lucy Blackwell for Stroma in Local Government and also in Central Government

Despite the temptation to keep costs down during a recession, Stroma maintains that investing in energy efficiency measures now may in fact be the route back to financial security for landlords.

Understandably, the current climate means that landlords and tenants are not making energy efficiency their top priority. Clearly, both parties are more preoccupied with the current battle for survival over rents, service charges, staff costs and possibly other matters such as building maintenance and lease renewals. Nevertheless, the opportunities for saving money, increasing rents, retaining tenants and increasing asset value - simply by taking measures to improve energy efficiency - should not be overlooked.

Landlords in the green

The need to demonstrate Corporate Social Responsibility is pressing, although admittedly at a corporate level at the moment. However, soon landlords will be expected to demonstrate environmental awareness by taking steps to improve energy performance. On the plus side, this will have an impact on value. Publicly-funded organisations led the initiative some time ago, realising that energy efficiency is bound to become a deciding factor in matters such as lease renewals and rent reviews. Surely tenants will be more likely to sign on the dotted line for efficient property with its promise of lower running costs and high comfort levels. Thus landlords have an opportunity to increase retention periods and, in doing so, increase asset value.

The private sector was following this view until halted by the current financial crisis, yet it is the ‘energy-conscious’ property professionals continuing to invest in energy-saving measures, despite current financial difficulty, who will ride out the present storm. General consensus is that, come the next round of lease renewals and rent reviews, those acting in the best interests of the environment will be able to secure deals ahead of the pack.

Should I stay or should I go?

Over the next few years, tenants will presumably be reviewing the financial implications of long-term leases in increasingly expensive premises. Admittedly, few currently take environmental factors into account when discussing comparable evidence. Energy costing has historically been a minor factor in relation to other outgoings such as rent, service charges, rates, insurance and staff costs. However, it will no doubt become greater cause for concern given rising energy costs and tenants negotiating in three or four year’s time will have EPCs, DECs and energy audits to inform their decision. Comparable evidence will be sourced as before, but this new matrix of energy assessment will give tenants an undeniable, almost government-backed, ability to discuss discounts until property is upgraded to an acceptable level of efficiency. Furthermore, since commercial property supply outweighs demand, tenants will be able to drive negotiations from a strong standpoint.

Going above and beyond

It would therefore seem that landlords failing to carry out ‘upgrade’ work in the next three to five years will continue to loose out financially in an already brutal market. On the flip side, the need to avoid rising energy costs will mean that energy efficient property begins to attract a premium. Consequently, landlords exceeding legislative requirements and investing in energy efficiency measures now will surely reap the benefits in the future. The mandatory Energy Performance Certificate (EPC) only outlines building fabric performance, not the actual energy usage which is required to ascertain the best strategies for monitoring, management and moderation. Landlords and property consultants should be going one step further, working closely with energy specialists to determine the most practical measures for improving energy efficiency, for the benefit of both themselves and their tenants.

Stroma assists clients in identifying and implementing the most cost-effective and straightforward energy management strategy, with services ranging from the provision of energy assessments – including EPCs and DECs – to energy audits, feasibility studies and costing analysis. Stroma offers guidance on current, and imminent, legislation such as the Carbon Reduction Commitment (CRC) which will necessitate further co-operation between landlord and tenant. Many corporate organisations and local authorities are gearing up to the CRC with Stroma’s assistance and with governmental, financial and public pressure increasing and tenants now including these factors in negotiations, it makes sense for landlords to be looking beyond the present economic situation and doing the same.

For all enquiries, please contact:

Stroma
Pioneer Way
Castleford
WF10 5QU

T: 0845 621 11 11
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