The recent implementation of new legislation by the UK government has left the commercial property sector in England at risk of losing £1.4bn annually in rent. This is because buildings with an energy performance certificate (EPC) rating below E are no longer eligible for trading or leasing under the new regulations. While the regulations are set to become more stringent over time, with the minimum EPC rating expected to rise to C in 2027 and B in 2030, the potential impact of this legislation is significant, and could increase the level of regional rent at risk to as much as £3bn and £4.8bn respectively.

According to data from EG, a leading provider of data, news and analytics for the commercial real estate (CRE) sector, the new legislation is expected to have a major impact on the CRE market in England's regions. For example, in London alone, 24.1 million sq. ft of commercial space is expected to fail to meet the new regulations, which is equivalent to the risk faced by 20 Shard buildings. Across England, the total amount of commercial space at risk is 95.6 million sq. ft, which is equivalent to 80 Shard buildings.

Tom Flanagan, product manager at EG, said: "The CRE market will undoubtedly take a significant hit following the introduction of this new EPC legislation. With billions worth of rent taken off the market and assets left stranded, we can expect to see rental premiums put on energy efficient buildings and competition for properties increasing."

Flanagan added that it's important for landlords to take action now, as the EPC regulations are only expected to become more stringent over the coming years. By ensuring their properties are compliant with the new regulations, landlords can avoid the risk of losing out on potential rent and ensure they are meeting the market demand for energy efficient, sustainable buildings.

For landlords whose properties do not meet the new EPC standards, there are steps that can be taken. According to Liz McKillop Paley, a real estate principal associate at law firm Shoosmiths, the new rules enforced from April 2023 only apply if a building falls under the Minimum Energy Efficiency Standards (MEES) regulations and has a valid EPC. If a property is vacant, it can remain so without an EPC, but the risk of not making improvements is that a landlord could be left with a stranded or obsolete asset.

McKillop Paley advises landlords to carry out cost-effective energy efficiency improvements and meet the EPC standards, even through small upgrades during a building's life cycle. By doing so, landlords can ensure they comply with the evolving regulations and avoid being left with a property that the market deems substandard.