Decarbonising a multi-let building: embrace the complexity

14 Mar 2022

By Jenni Dobbs

For a variety of reasons, landlords and investors now ask CBRE very detailed questions about how to decarbonise their portfolios – or buildings that they’re thinking of buying. They might be under pressure from their own clients to improve their sustainability credentials. They might have noticed that their buildings don’t (or won’t) meet regulatory standards, or don’t sit comfortably with the UK’s new 2035 carbon emissions target. Or it might simply be that they want to ‘do the right thing’.

Either way, there are many actions that landlords can take, which my CBRE colleagues have previously written about on this website, including reducing building energy demand in the first place, and switching to renewable heating sources.

But often we worry that clients risk starting in the wrong place. We are often asked “how do we refurbish this building now?” because the leasing schedule has thrown up an opportunity. But the question that really needs answering is “what is the right refurbishment approach to this building over time?” Tactical interventions need to be located within a wider strategic plan looking at the full range of opportunities as tenants come and go, and as building services reach the end of their working life.

This is particularly true when a block date is hard to come by. Admittedly, having a block date makes upgrades much easier, and we always advise landlords to take advantage of it if they can. But multi-let office or shopping centre leasing arrangements may not allow for this during the landlord’s ownership of the building, meaning that refurbishments and upgrades become a complex jigsaw puzzle of partial interventions.

But necessity is the mother of invention. In fact, when challenged by clients to present options for decarbonising multi-let buildings, we find that implementing a strategic plan for multiple interventions over many years can achieve the same improvement in performance as having a block date. In fact, it can achieve it sooner and more cheaply because income continues to be generated and there is potential to recover some of the costs through service charges.  

For example, many investors might prefer the simplicity of a model that (for example) gets a building from the currently-required EPC ‘E’ rating to the likely future requirement of EPC ‘B’ in one hit. But if this involves waiting for tenants to terminate their leases it could cost more overall than a range of targeted improvements as part of a strategic – but admittedly more complex – multi-year plan.

Even better, landlords can offer improvements to existing tenants and potentially re-gear leases to secure a ‘green premium’ on rents as a result. Transparency and collaboration can help tenants to ensure that they get the sustainability improvements that they see as desirable, and our recent client survey suggests they may well be willing to pay for at least some of these.

We also find that occupier attitudes to the ‘gut the building and start again’ attitude are changing. Occupiers seem happier now to accept recycled and re-used fittings rather than expensive (from a greenhouse gas emissions perspective) new ones. Whereas ‘new’ used to be a selling point which CBRE’s brokers would instinctively deploy, ‘recycled’ is increasingly becoming more persuasive.

Finally, it’s not enough to have a multi-year strategic plan: you must stick to it. It needs focus and management from property managers year in, year out, and that’s why CBRE’s Building Consultancy team work closely with our Property Management team to embed the improvement works that our ESG Consultancy team recommend. We’re interested not just in what should happen, but actually making it happen for our clients.

And by the way, the strategic plans that we prepare for clients often cover other aspects of the sustainability agenda as well. An opportunity to reduce greenhouse gas emissions can often also be an opportunity to improve wellbeing and social value. That does make things more complex still, but our view is that embracing complexity can often lead to better outcomes.

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