Commercial real estate is off track on proposed MEES targets

Now that Jacob Rees-Mogg has been appointed as Secretary of State for Business, Energy and Industrial Strategy, we might finally learn whether the government will continue as planned with the proposed move to raise the Minimum Energy Efficiency Standard (MEES) for non-domestic buildings to EPC ‘B’ or above by 2030.

If it does go ahead, it will become illegal to let any non-domestic property in England and Wales with an EPC of ‘C’ or lower, unless exempt. There are a number of potential reasons for exemption, but these are yet to be confirmed.

This regulation would reflect the UK government’s intent to drive sizable reductions in the environmental impact of real estate to deliver on the legally binding net-zero commitment by 2050. 

The government estimates that there are 1.8 million non-domestic premises across England and Wales. Approximately 1.1 million (60%) of these are rented and therefore fall into the scope of MEES. Ensuring all of these have an EPC or B or above in less than eight years’ time is an ambitious target.

Since EPCs were introduced in 2008, only 119,000 EPCs of ‘B’ or higher have been issued. That’s only 11% of the total stock that would be affected by the new MEES. So, the number of ‘B’ or higher EPCs issued must increase significantly over the next eight years if all stock is to reach the required standard by 2030.

To explore how commercial real estate could achieve this, CBRE has forecast EPC issuance up to 2030. This forecast does not account for exemptions.

Figure 1 shows the number of EPCs ‘B’ or above that we expect would be issued annually if issuance continues to increase at the average rate over the last 5 years (19%), represented by the light green bars.

Figure 1: Non-domestic EPCs issued annually in England and Wales, 2010-21 and CBRE forecast

Source: BEIS and CBRE Research

At this rate, 60% of all non-domestic stock would have an EPC of ‘C’ or lower in 2030, rendering it unlettable.

 ‘Business as usual’ would clearly not be enough to meet the 2030 target. So, what would it take? The dark green bars in Figure 1 show that the necessary annual rate of increase in issuance of EPC ‘B’ or higher must be at least 41% if the 2030 target is to be met. To achieve this, over 340,000 ‘B’ or higher EPCs would need to be issued in 2030 alone. That’s over 20 times more than were issued in 2021.

There are some positive signs. A forecast which we shared with CBRE clients a year ago (represented by the grey bars in Figure 1) revealed that at the end of 2020, 70% of stock was on course to be unlettable by 2030. Our analysis of 2021 data, presented above, therefore suggests a marked acceleration in refurbishment.

However, if the regulation goes ahead as planned, much must still be done to meet the proposed 2030 deadline. The annual increase in EPC ‘B’ or higher (over the last 5 years) must more than double. This means landlords must more than double the speed at which they implement energy efficiency improvements to their buildings if they are to avoid the clear risk to rental income from 2030 onwards.

Get in touch with CBRE’s ESG consultancy team for help and advice on how to achieve this.