Climate change is the biggest challenge to society and the economy that we have ever seen. As political leaders, society and businesses belatedly look to mitigate its impacts, we focus on the changes required in real estate at both the operational and building level to optimise energy and carbon efficiency.

The need to decarbonise is no longer a subject for debate for businesses and the real estate sector. The impact of Covid-19, and the increased focus on our physical environment, has pushed the importance of sustainability even further up the agenda. The green wave is very much upon us – with political, societal, corporate and indeed economic attitudes all pushing in one direction.

This report builds on our work, examining the Ten trends for a zero carbon world and sets out the key pressures affecting the industrial built environment, the changes that need to be made and the cost of doing so in order to achieve the green industrial revolution.

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A key battleground

Demand for industrial and warehouse space continues to rise, driven by a combination of e-commerce growth and global disruption to supply chains. For many organisations, their logistics operations are also under intense scrutiny in their drive to decarbonise.

EPC, as easy as A + B

According to our analysis, the 2023 MEES will impact 9,900 industrial properties.

The MEES 2030 requirement means all non-domestic properties need to achieve an EPC grade B or above. This means in excess of 89,900 or 90% of industrial properties need to improve their energy performance – a considerable task.

Upgrading our existing stock

The age of properties in the UK industrial market is one of the reasons for the considerable challenges posed by the retrofit requirements to increase their sustainability.

20% of industrial stock was built in the last 20 years

43% was built in the 1980s and 1990s

38% is more than 40 years old

As a result, these aging assets are encountering environmental obsolescence as climate policies and energy efficiency requirements become more stringent.

Overcoming the challenge

While some developers are already striving for carbon neutrality, biodiversity net gain, BREEAM Outstanding and EPC A ratings on new stock, arguably the greater challenge is around how to upgrade existing stock. While many new and refurbished buildings have the ability to operate at a high level of efficiency, earning good EPC grades and other environmental design accolades, very few buildings match their design estimate in operation.

Facing reality

The cost of improving the UK’s industrial, manufacturing, logistics and warehousing stock – even just in terms of MEES – is gargantuan. In order to highlight the necessary investment needed, we have modelled three hypothetical buildings with characteristics typical of their particular strata of the industrial real estate landscape.

1960s |1980s | 2000s

Through conducting detailed EPC modelling with Arbnco, we are able to provide case study examples of what’s required to improve the industrial stock of all three buildings.

Capital value

While there is clearly a necessity to comply with government legislation, for most asset owners the decision on what retrofit improvements to make will depend on whether they perceive them to be cost effective.

Some upgrades will sufficiently enhance the value of the asset, creating a green premium, but if the work isn’t undertaken, then the value could fall below what the cost of the retrofit would be, creating a brown discount.

Do landlords spend the money to bring their assets up to code, or take no action and allow the building to become obsolete? Our analysis looks into scenarios for assets built in the 1960s, 1980s and 2000s and the potential yield shifts associated with upgrading or choosing obsolescence.

Gridlocked

We are seeing an increase in demand for energy due to automation, electric fleets and 24/7 working patterns. This is placing a huge demand on the UK power network, National Grid, which will only increase as the rate of electrification grows. The importance of having an electricity supply (or supplies) which support operational resilience whilst also underpinning the ability to achieve net zero is a balancing act which organisations need to consider carefully.

Built for purpose

Green roofs, energy saving doors and even low-emitting paint can be highly effective elements to consider for your property, but the ability to harness self-generated renewable energy will be a key factor for some properties and can create insulation against some of the energy prices shocks seen in recent years.

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