NEW analysis from Knight Frank has found that almost a third of Scotland’s office space could be at risk of being unusable if the Scottish Government follows the Minimum Energy Efficiency Standards (MEES) that apply to England and Wales.
The commercial property consultancy revealed that 29% of Scotland’s office stock has an Energy Performance Certificate (EPC) rating of E or below. Under rules brought in on April 1st 2023 in England and Wales, non-domestic properties that fail to meet this standard cannot be let to an occupier.
The MEES rules will be tightened further in the coming years. From April 2027, commercial properties will need at least an EPC rating of C to be lettable, while in 2030 this will rise again to only buildings that achieve an A or a B rating.
If Scotland follows a similar path, 55% of office space will need to be brought up to a C rating or better. Only 21%, of current office space is rated B or above – with 8% achieving A or A+.
The Scottish Government is aiming for the country to be net zero by 2045 – five years ahead of the UK. Interim goals of reaching 75% and 90% of the overall target have been set for 2030 and 2040. A consultation document recently released by the Scottish Government set out its intention to align with the English EPC system and to reduce the validity of EPCs from ten years to five.
Toby Withall, office agency partner at Knight Frank, said, “It seems inevitable that there will be some form of legislation coming in Scotland that reflects what the UK Government has sought to do with MEES. With the Scottish Government setting an earlier net zero target and the built environment known to account for a significant share of emissions, it is only a matter of time before building owners will have to take action.
“Even in the absence of legislative pressure, many corporate occupiers have their own net zero targets and will not consider space with an EPC rating below B.”
Gordon Hamilton, building consultancy partner at Knight Frank, added, “We’re working with a range of landlords who are keen to get the EPC ratings of their buildings to as high a level as possible, given the direction of legislation and demands from current and prospective occupiers. There are a range of steps you can take, whether it is improving the mechanical and electrical features of a building or, in more extreme cases, potentially re-cladding the exterior.”
Euan Kelly, capital markets partner at Knight Frank, commented, “From a capital markets perspective, we are increasingly finding that investors have their own carbon targets to achieve and won’t consider assets below a certain standard. Where work has not already been undertaken, they want to see a clear pathway to bringing EPC ratings up. Office assets that require a significant amount of work are also seeing this reflected in pricing, with a ‘brown discount’ – where buildings have poor ESG credentials – now becoming common.”
