A large section of London's office market could soon face serious challenges as stricter environmental regulations approach, according to new analysis by property consultant Robert Irving Burns (RIB), per a report by Hindustan Times.
The firm said government data shows that 78 per cent of office buildings in Westminster and 71 per cent in the City of London are likely to fail upcoming Minimum Energy Efficiency Standards (MEES) expected to be enforced in the early 2030s.
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The UK government plans to introduce tougher energy efficiency requirements for commercial properties. Under the proposed rules, office buildings would need an Energy Performance Certificate (EPC) rating of at least "B" in order to be leased, the HT report stated.
Landlords face rising upgrade costs
According to RIB, more than 12,000 office properties across central London currently need major upgrades to comply with the future standards. Westminster is expected to be among the worst-affected areas, with more than three-quarters of office buildings at risk of becoming obsolete.
"Not only will achieving compliance require enormous capital expenditure across the board, but current market capacity with labor shortages and financing constraints will make achieving the early 2030s deadline virtually impossible," Antony Antoniou, chief executive of RIB, said in a statement.
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The report suggests that many landlords may struggle to fund or complete the required refurbishments in time, especially smaller property owners dealing with rising costs and financing pressures.
Green buildings becoming more valuable
While some landlords are under pressure, others see an opportunity. Investors have reportedly started targeting older commercial buildings at lower prices, planning to upgrade them into energy-efficient properties that could later attract higher rents or resale value.
Companies involved in such investments include Blackstone Inc., Brookfield Asset Management and Henderson Park.
"We're seeing traditional landlords, smaller landlords selling, and we're seeing specialist funds who are looking for these office buildings,' Antoniou said.
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RIB noted that only 4 per cent of office properties in the City of London currently hold the highest EPC rating of "A". The shortage of highly energy-efficient office space is already affecting leasing decisions, with some tenants reportedly delaying relocation plans.
"As demand increasingly concentrates on high-performing, energy-efficient buildings, the market is becoming more polarised," RIB said. "Assets with strong sustainability credentials are commanding premium rents and values, while older, non-compliant stock are generating significantly lower rents and seeing longer void periods."
