New research conducted by global real estate adviser Knight Frank has warned the UK is struggling to overcome its commercial retrofit challenge, as the sector comes under pressure to align with net zero goals. Obsolescence is accelerating due to growing regulatory, physical, financial and functional sustainability-related risks, the report noted, with 70% of commercial property floor space in the country rated EPC C or below. This means that most floor space on offer would be at risk of being unlettable if previously proposed minimum energy performance standards are implemented. Total commercial floor space with an EPC B or higher has grown by an average of 8% a year to reach two billion square feet at the end of 2023. This needs to double to 18% a year for all commercial properties to be aligned with the country’s 2030 energy ambitions, Knight Frank suggested. In London alone, some 12.7 million square feet of available commercial space needs to be upgraded over the next six years. Cardiff has the lowest proportion of available office space with an EPC of B or above at 24%. Just over three quarters of surveyed European investors said they were looking to improve the quality of their existing real estate portfolios through refurbishment, with 58% claiming they are actively seeking to acquire poor ESG-performing assets to upgrade. “Obsolescence is nothing new but is accelerating due to sustainability factors,” said Flora Harley, Head of ESG Research at Knight Frank. “The risks are complex, interlinked, and driving investor and developer strategies – they are significantly reshaping the market and need to be fully understood and analysed. By delivering the most desirable buildings from an amenity perspective, landlords and investors can ensure that the buildings are the most lettable and can help occupiers meet key objectives, such as talent retention and ESG requirements.”
