Is sustainability a challenge or an opportunity for commercial property investors? The answer is both, with the need to achieve net-zero targets by 2030 set to have a major impact on the commercial property market.

While the implications of the government’s heat and buildings strategy for the commercial property market are less daunting than they are for the residential property sector, there are still significant challenges ahead, not least for the retail sector.

According to a Savills report, over 80% of retail sector property does not currently meet the Energy Performance Certificate (EPC) B rating that will be required from 2030 to ensure that it can continue to be let. As a result, landlords either have to invest in a sizeable amount of property renovation and retrofitting, or offload.

Sustainbility targets set to frame commercial property investment

Looking ahead, the current EPC rating of retail property and other space in other commercial property sector will undoubtedly influence how investors approach the market. Properties that have the required rating or can be easily and inexpensively upgraded will obviously be more attractive. Conversely, commercial property that requires extensive renovation is likely to be less attractive, a status that is likely to have an impact on its price and rentability.

Investment in EPC B-rated or above properties will have clear benefits for landlords who will be able to sell sustainable space on the basis of lower energy bills, reduced reputational risks and reduced carbon emissions. In the age of growing demand for corporate responsibility, such criteria are likely to become increasingly influential on overall strategy.

Net zero aims to influence key retail property sector development

Taking a step back, as Q1 begins to draw to a close, with warehousing and logistics property and primary shopping centre space the clear market hot spots, it will be interesting to see how sustainability effects these areas and the whole market going forward.

Returning to the retail sector, in particular high-street spaces and secondary retail areas that are struggling, there is the possibility that the need for significant renovation will encourage owners and investors to convert retail space into residential and leisure use, now that the legislation has changed.

How sustainability could impact the residential and office property sectors

Despite the impact of the pandemic, the demand for residential property remains high, with the build-to-rent sector fast emerging a key investment area. The need to meet net-zero targets could well help fuel growth in this sector, with building new property that meets sustainbility requirements more efficient than converting existing space.

The office sector is another market that could be markedly influenced by sustainability goals. While the outlook for this market remains underwhelming, the lifting of restrictions and the return of commuters is beginning to breathe life back into the sector. Properties with sustainability credentials are likely to be more in demand and more profitable.

Sustainability issues and the role of the right commercial lender

The impact of sustainability on the commercial property market, which is already experiencing historic flux, is set to create both challenges and opportunities. Key to overcoming the former and taking the latter is the right commercial loan and mortgage lender. It is critical to have one that can provide flexibility and access to all the available funding options, including the services of alternative lenders.

To find out more about A&T Business Associates services for commercial property investors, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.