Smaller retail units owned by private or individual landlords are most at risk, accounting for over 80% of the 185 million sq ft
Research from international real estate advisor Savills has revealed that a total of 185 million sq ft of all UK retail space is at risk of becoming unlettable by next year, if the Minimum Energy Efficiency Standards (MEES) are not met.
The figure follows ambitious targets set by the Government which will prohibit commercial buildings with an EPC (Energy Performance Certificate) rating of Grade F or G being let from next year (1 April 2023), with a longer term target for all commercial buildings to be rated a minimum of Grade B by 2030.
In its latest Re:Imagining Retail report, Savills highlights that it is the retail property owned by smaller or individual investors, often in marginalised trading locations, that is most at risk.
Of the total 185 million sq ft of retail space at risk by next year, Savills reports that only 35 million sq ft can be attributed to retail parks, shopping centres and supermarkets. The remaining 150 million sq ft is the responsibility of smaller investors, largely in fragmented ownership, in locations where other occupational challenges exist.
Savills reports that this is due to the fact that property EPCs are more difficult to improve if they do not reside within institutional ownership, owing to limited access to funding and advice. The international real estate advisor therefore highlights the growing need and importance for more support for retail spaces with traditionally lower levels of investment to avoid them becoming stranded and unlettable by next year.
Tom Whittington, commercial research director at Savills, comments: “Most retail property emissions are actually not associated with the likes of shopping centres and retail parks, and instead come from the thousands of smaller units often on our high streets and in our town centres. These same areas are also seeing a reduction in
investment due to shrinking retail demand, which means converting units to higher standards of efficiency may be unviable in many circumstances with a significant risk of further stranded assets.”
The report from Savills highlights that only 25% of retail property carbon emissions are generated by units within shopping centres, retail parks and high street blocks, which are often owned by large institutional investors and are therefore arguably the easiest to improve. 75% of retail property emissions, however, are generated by smaller premises in secondary and tertiary locations and owned by private landlords, posing financial challenges, particularly in the current environment when the retail industry is suffering significant financial hardship amid ongoing structural change.
Savills goes on to note that there is a clear correlation between retail with the highest voids and least occupational demand and the lowest performing EPC ratings.
Mark Garmon-Jones, head of shopping centre investment and repurposing at Savills, adds: “While it’s no secret that we currently have an oversupply of retail in the UK, this doesn’t mean we can afford to lose more shops simply because they fail to meet energy efficiency standards. However, repurposing these units to alternative uses and upgrading environmental standards at the same time has obvious benefits compared to making improvements to shops that are no longer actually required. More intervention will be required to support landlords throughout this process, whether the intention is for the space to stay as retail or if it’s to find life under a different use through repurposing.”
Longer term, Savills reports that by 2030, a total of 1.4 billion sq ft of retail space needs to be improved to reach a minimum of EPC Grade B, equating to 83% of all UK retail real estate.
Chris Cummings, Savills Earth director, adds: “The MEES targets for 2030 appear to present a huge challenge for the retail sector but actually represent the bare minimum required if we are to reach net zero emissions on a national scale. The majority of those properties deemed to be at risk of stranding will be subject to at least one refurbishment, maintenance or fit-out project in that time. The crucial factor will be providing those owners and occupiers with the technical and financial support to ensure that, when that project or intervention takes place, a consideration of compliance with 2030 targets is a fundamental requirement, maximising the opportunity to align to net zero.
“Those properties which fall foul of the 2023 stranding events will serve as a stark warning to industry and government on the impact of setting such hurdles without providing the mechanisms for property owners to overcome them. Combined with the catalysing effect of the energy crisis, this will hopefully shape the policy and legislative landscape on the transition to 2030, and ultimately 2050, for the better.”
- Ends
Notes to editors:
- This research forms part of the third issue of Re:Imagining Retail – the flagship publication from Savills that explores how retail can be repurposed and repositioned for the future.
- In this latest issue we explore the many facets and challenges relating to environmental sustainability within retail repurposing. What will retail real estate have to do to be truly green, reach net zero, be socially conscious and to thrive once more?
- The publication includes commentary from Savills experts throughout the business and discusses key topics such as:
- Drivers for change – EPC compliancy, consumer behaviour and green premiums vs brown discounts
- Energy sourcing and production – where are the opportunities?
- Greener developments – to rebuild or retrofit?
- Occupational carbon – retailer emissions, the cost of waste and the role of green leases within retail
- Policy – green valuation and financing, planning and ESG in the EU
- If you are interested in discussing any of the above topics with us, we would be more than happy to arrange a call with our Savills experts who are on hand to chat through.