Environmental Social Governance (ESG): Retrofitting To Achieve Energy Efficiency

Owners of old commercial and residential buildings must explore the retrofitting option to meet energy efficiency guidelines, as the UK government resolves to achieve net zero by 2050. The UK is battling with the cost-of-living crisis and a gloomy economic outlook and on top of these homeowners face the challenge of needing to retrofit houses and buildings to meet new EPC and MEES standards. Despite the significance and urgency of meeting energy efficiency standards, this is not easy on older buildings.

Urgent need to retrofit older buildings

Urgent need to retrofit older buildings

Energy consumption costs are much higher for older buildings. Together, commercial and residential properties generate over 20 percent of the UK's total carbon footprint. The challenge is to how older buildings can be improved to reduce otherwise excessive energy consumption which results in inflated energy bills. The need to save energy and mitigate carbon footprint is widely acknowledged, however, the prohibitive costs of retrofitting the older buildings need in-depth consideration before implementing changes.

The increased tax burden on private landlords who are no longer able to offset mortgage interest, rising mortgage rates, and stiff regulations have severely burdened landlords, property owners, and buy-to-let investors. Most old properties have solid walls and some require exorbitant investments to match energy efficiency standards. Assessing the economic viability of retrofitting old buildings in residential and commercial sectors is crucial before planning investments.

Economic considerations

Economic considerations

Most commercial property owners are sceptical about the return on investments to retrofit buildings. Perception is improved when a property owner understands the return on investment (ROI) for retrofit investment. The ROI can be demonstrated by modeling typical break-even analysis and managing short-term expectations.

There are several intangible benefits of retrofitting older buildings, though computing an ROI is challenging because of severely higher project costs. More new commercial tenants seek low-carbon properties. As property occupiers become more aware demand and therefore a building's value will plummet with no energy efficiency measures. Retrofitting is crucial to comply with energy efficiency norms and to fulfil tenants' expectations.

Risk-to-benefit considerations

Risk-to-benefit considerations

Quickly the market will catch up and buildings that cannot meet energy efficiency standards will be impacted severely as the potential to sell or let is hampered. Having an energy-efficient property in the right location will fetch a better price besides attracting premium tenants.

As the market adjusts there will be a severe shortage of rental properties as some landowners adopt a wait-and-see approach and postpone retrofitting because of the high cost of investment needed. Many will only start to join in when they see rental value fall and demand waning and or fines levied. Some landlords will choose to sell up causing supply shortages and this will further fuel rent rises and premium rents for energy-efficient stock premises that command a premium rent will fare better as the rent premium will help the property owner absorb the high cost of retrofitting older commercial and residential buildings in the longer run.

Need to develop a skilled workforce

Need to develop a skilled workforce

Retrofitting activities to make older buildings energy efficient will generate hundreds and thousands of new jobs. There is a need to develop a strong workforce comprising scaffolders, electricians, carpenters, and plumbers for retrofitting old buildings.

The construction industry struggles with workforce shortages because of aging, Brexit, and the recent pandemic. The construction sector will require a continuous yearly supply of workers for three decades to achieve the net zero objectives by 2050. The government should help bridge labor shortages and streamline funds to provide retrofitting training to workers.

If you are worried about retrofitting to meet the 2023 EPC requirements for residential buildings and MEES for commercial, our teams can help model the ROI and projected value uplifts.

EPC and MEES retrofit to boost the economy

EPC and MEES retrofit to boost the economy

Refurbishing is necessary to extend the lifespan of older buildings. Several factories, mills, and townhouses that witnessed and contributed to the industrial revolution can boost the economy and job market in the UK through retrofitting activities right now. It will also take the country closer to its climate targets as these will minimize carbon emissions significantly.

Retrofitting older buildings improves economic output by boosting the construction industry. It will also help promote the tourism and hospitality sectors in the UK. Energy-efficient homes lower the carbon footprint and reduce energy bills, besides improving the health and living standards of the residents.