As published in EG ESG Special Magazine on 01 June

The number of ESG buzz words in real estate has tripled over the past decade. With knowledge growing and technology accelerating, what we thought was important a year ago now appears outdated.

As our sustainability expertise builds, we have gained a clearer perspective that the greenest building is the one already built. Retrofitting existing buildings can be a cost-effective way to meet current standards and reduce environmental impact. However, while retrofitting a vacant and conventionally constructed building is relatively straightforward, most buildings in the UK are not this. They are historic and often listed, aged, and multi-tenanted with different lease cycles. They often have different heating, ventilation and air conditioning systems running, producing not only significant logistical challenges when looking to refurbish when occupied, but substantial impacts to service charges too.

Fabric first

For owners to see a quick win to retrofit a building for MEES compliance, you need to optimise the mechanical and electrical system – a new HVAC system has the potential to gain 15-20 points on the current EPC grading system.

As M&E advances, buildings will become more finely tuned to building management systems. For owners who have grade A office stock and the revenue to realise the benefits, we are seeing implementation of smart tech over the next decade, but how long will it take for grade B or C offices to adopt such technology?

There are easy wins. Through the installation of LED lighting and an efficient HVAC system, EPC grades are jumping to a B, but the real challenges will be faced in the next decade.

The optimisation of M&E is clearly important, but it is its less glamorous counterpart that you need to build upon first – the building fabric.

When the EPC system is regraded, it will prove difficult to gain the small increments required to make the building efficient. This is when the efficient HVAC being installed today will not be enough, and the only option left is to replace the windows, façade or the roof.

There is proof of this from our previous go-to LED lighting strategy. Before the EPC model was changed in 2022, LED lighting was the silver bullet, taking ratings from D to B. Now, it will only take the rating to C or, more likely, a higher D.

The reality of refurb

When we look at multi-tenanted buildings, a fabric first approach does hold significant challenges. If the building is of solid-wall construction and you can’t externally insulate due to listed status or positioning in conservation areas, you are forced to make improvements internally. This requires careful planning to ensure cold bridges are eliminated, interstitial condensation avoided, and NIA impact mitigated. While windows can be replaced to double glazing with relative ease, improving or installing replacement cladding/façades is near impossible around tenants.

Don’t forget the value in air tightness too. Efficient systems rely on producing a constant flow of conditioned air rather than the temperature spikes seen in traditional heating and cooling systems. How can you retain this conditioning if the building fabric isn’t working at optimum efficiency to store it in the first place? This is exacerbated further by the unpredictability of the weather and the likely increasing episodes of extreme temperatures due to climate change.

How to effectively deal with building fabric in the short-term is through active planned maintenance and service charges. While high service charges are not popular, is it not an opportunity to replace and refurbish?

The occupational conundrum

Landlords are facing very difficult choices when looking to refurbish and reposition occupied assets. Detailed feasibility studies should be undertaken, feeding into appraisals, to understand how best to undertake works around tenants. A phased approach may work, especially where existing building fabric is good, but where intrusive works are required, or a mixed HVAC solution won’t work due to riser constraints, landlords may be faced with asking tenants to vacate. Landlords must look at not only the programme of works and costs, but also consider net zero and building efficiency; and if proposing multiple building systems, they must work together.

The easy road is to sort out the guts of the building and the M&E, but building fabric is the elephant in the room which is not being addressed and has the potential to trip landlords up in the next decade.

While the tolerances for fabric improvements on the EPC grading system are small, it is these small increments that will be difficult to gain later down the line when the M&E is already optimised and the building fully let.

Will Pasco

Regional Managing Director
Management Board

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