Improving energy efficiency and unlocking value: Transforming commercial properties through Airspace Development

30th November 2023

commercial epc

Head of Development, Daniel Wittenberg, explains how airspace development could be the solution landlords of commercial properties are looking for in their drive to meet efficiency targets.

The concept of the Energy Performance Certificate, EPC, was first introduced in the UK by the Energy Performance of Buildings Directive (EPBD) in 2003; a European Union directive aimed at reducing the amount of energy used by buildings, whilst also improving overall energy efficiency.

In 2007, the UK government began implementing this directive and introduced the EPC across both the residential sector and later in 2008, non-residential sectors.

It was back then, during my graduate years at one of the largest multi-discipline building services consultancies in the UK, that I was involved in producing EPCs for several high-profile Clients as part of a review of their portfolio of offices. We were also able to advise on the existing energy rating of the building and propose ways they could improve their efficiency.

Since then, energy-related legislation and regulations has continued to evolve as the UK government seeks to encourage and enforce greater energy efficiency in buildings and ultimately reduce the UK’s overall carbon footprint. It’s estimated that the built environment accounts for around 40% of all UK carbon emissions, with the commercial sector accounting for a significant proportion of this (source). Knocking these existing buildings down and starting again just isn’t a viable option in most cases.

It’s therefore no surprise that the commercial sector faces a huge challenge in reducing its carbon footprint and achieving its energy targets. This has been brought into sharp focus recently due to the regulations around the Minimum Energy Efficiency Standards (MEES), having originally come into force in 2018, but now moving into its next phase.

As of April 2023, an extension of the MEES regulation prohibits landlords from leasing out commercial buildings with an EPC rating of F or lower. Landlords will either have to make sufficient energy efficiency improvements to bring the EPC rating to E or above or register for an exemption. Failure to do so could result in significant fines. According to Savills, a staggering 70% of offices in the capital fall short of this.

commercial epc

There are a variety of measures that will help improve a property’s EPC rating. Some of these might seem relatively straightforward, such as changing to LED lighting or installing draught excluders, but it’s unlikely that this will be enough to reach the minimum requirements for an older building. Other, more complex and costly options will likely need to be implemented, such as upgrading the heating system to a high-efficiency one and installing a smart, energy management system, upgrading the glazing, and installing up-to-date insulation throughout. As one of the biggest sources of heat loss, that will include upgrading the roof to ensure that it’s properly insulated in line with current building regulations, but this is clearly difficult to monetise for asset managers. Similarly, insulating walls and floors could result in loss of area and major disruption. Renewable energy sources, such as installing solar panels on the roof, are yet another avenue that will no-doubt be sought to generate clean energy and reduce reliance on the grid.

The reality for commercial landlords though, is that all of this represents significant cost and resource, as well as having to deal with the disruption that this causes to existing tenants. We’re already hearing some of the repercussions of this with landlords re-thinking their position amidst what they see as an unviable option. Unfortunately, many landlords may need to sell their assets for a knock-down price if they determine that the cost of uplift is prohibitive.

As a leader in the airspace development sector, we see huge synergies in what we do and the challenges facing commercial landlords. For years, we’ve worked closely with residential landlords to build additional homes on top of their existing buildings, whilst also improving the state of the building. This includes some of the proposals outlined above such as upgrading their heating to new, more efficient systems, installing PVs and improving the insulation of the roof, by virtue of building on top and installing building-regulations-approved insulation on the new roof. At the same time, we look to improve some of the aesthetics of the building to help add value for the residents and freeholders. We’re able to do this without emptying a building of its occupants – rather, we work with the existing tenants to put a strategy in place that allows them to go about life with minimal interruption.

All of this helps to improve the existing building’s energy efficiency, thus reducing landlords’ service-charge bills and reducing the burden of having to dive into sinking funds or raise S20 requests onto existing residents. It seems obvious that this model would be perfect for commercial landlords also, especially given the impending costs they are facing. Working with an airspace developer offers commercial landlords an opportunity to deal with the requirements of the MEES, whilst also potentially extracting value from their asset and turning the situation from a loss-making conundrum to an appealing value-add proposition.

MEES are clearly not going away and the need to improve the energy efficiency of buildings is a real one, so landlords need to consider their options seriously. We’re keen to work with commercial clients and work collaboratively to help solve an energy crisis, whilst also helping to solve the housing shortage.

Fruition Properties’ current commercial airspace project comprising 9-units in Bermondsey, SE1 started on site in May 2023, with completion due summer 2024. We can also add new commercial space above existing buildings in areas which are well sought after, thereby delivering value through cost savings but also future value through new income. With the right partners and know-how, what is a liability could now become a future asset. This is more than just blue sky thinking.