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A case for retro-fitting

21 September 2022

At a time of spiralling inflation and supply-chain issues, UK businesses need to think even more carefully about how they occupy their space, particularly as working habits have shifted post-Covid. One key aspect of this will be to consider whether their current space is fit for purpose, could be made so, or is no longer suitable.

The climate crisis and ESG strategies add extra layers of complexity to this, as companies will factor in what would be the best way to minimise their carbon footprint whilst continuing to operate efficiently and effectively and meet ESG targets.

At this stage, it’s worth looking at some numbers: the stark reality is that buildings are responsible for a huge amount of the country’s carbon emissions, around a third come from buildings. Add to this the expectation that well over three quarters of these buildings are likely to still be around and in use in thirty years’ time, owners and occupiers will need to work extremely hard and very closely to reduce this footprint.

New buildings are not, on their own, going to solve the problem. Plus, some companies will not want -or not be able - to relocate; which can prove prohibitively costly, especially if they are mid-term on a long lease. For these businesses then, retrofitting may be a more practical and achievable solution though it is not without its challenges.

What does retrofitting entail?

At its simplest, retrofitting means upgrading parts (e.g. insulation or the HVAC system) or installing new technologies, monitoring and features, all with a view to reducing CO2 whilst also lowering energy bills.  There is no silver bullet, no one change that will magically transform a low performing into a ‘BREEAM Outstanding’ space, but priorities should include insulating and maximising thermal efficiency and switching to low carbon alternatives and away from carbon-heavy fuels. It is the combination of all different methods and efficiencies which will effect the biggest change: a new, low-carbon, HVAC system is no good if the heating/cooling goes straight out of the walls and windows.

Any issues?

One major stumbling block to achieving this, is that many occupiers are just that: they do not own the buildings they occupy. This means that, not only are they governed and restricted by the terms of their lease, they also need their landlord’s buy-in before any retrofitting can take place. With this, a fresh tension arises: a tenant with only a short-term interest (as tends to be the case in the UK’s leasing model) may not have sufficient incentive to invest heavily in green technologies, while a landlord with a full roster of tenants and a steady rental stream may feel similarly disinclined.

What can be done?

There needs to be effort and cooperation on both sides to achieve meaningful change. The UK’s current legislation does not currently have enough teeth to facilitate this push – green lease provisions have been around for years, but are still not pervasive, while most of those already in place are aspirational rather than prescriptive.  There is a shift though: binding contractual commitments are being made, and the hope is that, with ESG being pushed higher and higher up a company’s agenda, there will be an acceleration and real market drive to normalise such provisions. This writer can attest to a marked uptick in both the frequency of green lease clauses and the demands made by them.

Employees and candidates can help drive this change too: the search for talent demands differentiators, and strong ‘green credentials’ can provide this. Internally, committees and sustainability groups can pressurise their directors and stakeholders to invest in green tech and urge landlords to do the same.

External pressures?

In addition, it is anticipated that offices will need to achieve higher and higher EPC ratings throughout this decade and beyond. From 1 April 2023, the minimum energy efficiency standards (MEES) will extend to include not only new or renewal commercial tenancies requiring an EPC rating of “E” or above, but all commercial tenancies. This means existing leases of space with “F” or “G” will fall foul. The expectation is that, by 2030, this minimum rating will be lifted to “B” where it is cost-effective to do so.  Buildings that do not achieve this will require owners and landlords of commercial buildings to upgrade their properties or risk sanctions and penalties.

What about new-builds?

While a new, low-carbon, energy-efficient building may be an alternative, the bigger picture is that a new-build uses a huge amount of carbon during the build phase (roughly equivalent to around twenty years’ worth of operational use). Cement and other building materials also contain embodied carbon and, if it is a rebuild, the current building demolition and subsequent disposal needs to be factored in.  In many cases, therefore, it may be preferable to extend a building’s lifespan and to maximise its energy-efficiency by retrofitting with state-of-the-art technologies, which can, often, be introduced in stages to avoid major disruption.

What to choose?

UK businesses will need to weigh up whether a newly constructed building will better serve their long-term operational needs as well suit their finances, or whether retrofitting would prove cheaper, more effective, and less invasive, in the short-term. There is no hard and fast rule, no one size fits all. New buildings will showcase the latest technologies and be constructed to bring all those innovations together seamlessly, while a retrofit can make incremental, yet substantial, improvements to an existing building’s carbon footprint.

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