If the potential of the eco-friendly property, across the commercial property market, needed underlining, new regulation has undeniably done so. But the cost of upgrades is proving a barrier. What does this mean for landlords and investors?

The importance and value of making property greener and more energy efficient has long been signposted, not least as new energy efficiency standards and environmental regulations have drawn a line in the sand for landlords.

Over the last 12 months, the market has witnessed a growing focus on greener sites in the industrial sector, rising demand for greener office space (in a largely flat market space) and a move towards residential property with a stronger eco-profile, as well as similar trends in other key spaces, such as retail.

How big is the cost barrier to green property development?

Given the importance of meeting net-zero targets, this has been a welcome shift, but progress may be stalling, with cost proving a sizeable barrier. According to a new study from Property Week, just under 50% of landlords believe it’s too difficult and costly to implement environmental regulations, while research from Siemens Financial Services claims that commercial property worth £93 billion could be at risk of being stranded (i.e. being empty) because landlords cannot afford to invest in upgrading properties to meet new energy legislation.

Looking at the state of the market and the economy in general, with rising interest rates having a particularly significant impact, it comes as little surprise that landlords are struggling with costs. The small business sector is in a similar position with regard to investment in decarbonisation-focused development, with costs stalling progress.

What does current green property development look like?

However, that’s not to say that all landlords are not spending – a new study from Handelsbanken states that one in five professional landlords is planning to spend £500,000 or more in the next 12 months on renovating properties in order to meet new energy performance regulations. More than half of landlords have earmarked £100,000 or more for upgrades.

Recent commercial property deals in Hertfordshire and Nottingham highlight the trend for greener development, and its role in driving market activity. In the former, permission has been given to develop a new garden village and town centre in Cheshunt, which have a notable eco-profile, while in the latter, a bank building will be transformed into a travel business and solar panels, LED lighting and double glazing are set to be key features of the renovation.

Green property investment and your commercial loan lender

The attraction of green properties is clear, but so is the issue of affordability, in terms of upgrading buildings to meet new standards and customer expectations. It will be interesting to see how under-pressure landlords approach the shift – financial planning will be key and there may be more properties on the market in coming months. Investors should keep a close eye.

Whether it’s a case of landlords planning renovation or investors looking to snap up opportunities, access to capital will be vital – in terms of affordability, manageability and flexibility. Given the current condition of the market and the borrowing environment, the right choice of commercial loan and mortgage lender is crucial.

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.