Changing the Climate

    Michael Pillow, Director Building Consultancy on the pros and cons of being an eco-friendly landlord.

    Q. How important is sustainability in the commercial property market?
    A. Green issues are moving up the agenda for occupiers, partly because of a growing conviction that we must all do our bit to combat climate change, but also as a way of controlling costs. For landlords and investors, it’s also important their buildings remain attractive to the broadest market. 

    Q. Are buildings in the capital becoming more sustainable?
    A. As a general trend, they are becoming more energy and resource efficient, as well as more sustainable in operation. Building regulations are being revised every three years – this includes a progressive uplifting of energy performance. New construction must comply with the high sustainability standards of the latest regulations.

    Q. How are landlords dealing with the additional costs of sustainability?
    A. There is a high capital cost (5%-15% of the construction cost), which must be passed on to tenants at some point. But tenants are resistant to paying more up front on the promise of lower running costs in the future. On new builds, the costs are minimised by the early integration of technology which is seen, in part, as a marketing cost. When it comes to refurbishment, many landlords are taking a “good housekeeping” approach, adopting green technologies that can be installed without disruption. But much can be achieved at relatively modest cost with fast payback periods of under 10 years.

    Q. What are currently the most popular green options for owners and occupiers?
    A. Lower cost options are the most popular. These include changing people’s habits, replacing light fittings, adjusting thermostats and installing smart metering. Anything more radical begins to ramp up costs very quickly.

    Q. Are landlords looking at introducing more substantial improvements?
    A. Bigger upgrades include improving insulation, although this usually involves closing whole floors while walls are sprayed, installing secondary double glazing and renewing false ceilings. This may be justified if the cabling has to be updated for new technology, but otherwise adds very substantially to the costs.

    Q. How are environmental upgrades for commercial buildings being financed?
    A. The problem landlords face is that they must pay up front and hope that the increase in rental level will recover their costs in a reasonable time frame. Occupiers are very interested in the energy savings that can now be achieved – the feed-in tariff for electricity generated by solar panels can be a handy sum. Companies with a high public profile also see the environmental performance of their buildings as part of their corporate social responsibility programme. Indeed, many firms are finding that they need to demonstrate high sustainable credentials to attract key staff.

    Q. What about buildings which haven’t currently been upgraded?
    A. Some landlords are being tempted to cash in on the “brown discount” – offering non-sustainable buildings at cut rates but saving on the upgrading costs. This is a risky strategy. There will soon come a time when buildings that have a bad environmental performance will not be lettable at any price. Tenants will fear public exposure and as a result will simply refuse to move in to buildings with inadequate green credentials.


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