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Property fund managers sitting on 'timebomb'

New legislation will expose the poor state of Britain's commercial property - causing a dramatic fall in the capital value of the UK's investment portfolios, according to new research released by Gensler.

In a stark warning to commercial property investors, the report, Faulty Towers: Is the British Office Sustainable, reveals that 75% of property developers believe that impending legislation to grade the energy efficiency of buildings (in response to the EU's Energy Performance of Buildings Directive) will have a negative impact on the value and transferability of inefficient buildings when certification is imposed from 2007.

Chris Johnson, managing principal, Gensler London said: "Property fund managers are effectively sitting on an investment timebomb.”

“The introduction of energy performance certificates will shorten the lifespan of commercial buildings constructed before the new regulations, and we expect the capital value of inefficient buildings to fall as a result.”

"We expect to see a shake up in the market, with investors disposing of inefficient stock, upgrading those buildings which can be adapted and demanding much higher energy efficiency from new buildings."

According to the research, over a quarter of companies' property-related energy consumption could be saved by making offices more sustainable, the equivalent of £155 million wasted every year.

The report also reveals that nearly three quarters (72%) of company property directors believe that business is picking up the bill for badly designed, inefficient buildings and more than a quarter (26%) state that bad office stock is actually damaging UK productivity.

With spiralling energy costs pushing energy efficiency up the agenda, business is shown to welcome the grading of buildings and is aiming to reduce property related energy consumption by 12% over the next 5 years.

While property directors confirm that business is willing to pay 10% more in rent for efficiently designed and constructed buildings, the majority of property developers (67%) state that they will only go as far as legislation demands when it comes to energy efficiency.

"With around 40% of energy consumption in the EU coming from the building sector, more sustainable and efficient design offers an enormous opportunity for reducing energy wastage, reducing carbon emissions and cutting costs," Johnson said. "However, there is a perception amongst developers that there is no demand for sustainable buildings. As a result, they lack the incentive to commission greener buildings.”
 
Sir Digby Jones, former director general, CBI, said: "Sustainability has increasingly become part of the language of commercial property. Yet despite individual examples of good practice, energy use in the commercial sector has risen rapidly and too often the development industry perceives a lack of demand for energy efficient buildings.”

This needs to change. For the market to develop it is vital that investors, developers, business users and the government work together to make a compelling business case for sustainable buildings. Only then will they be built. As the Gensler report shows, such foresight could save UK businesses millions of pounds every year in reduced energy costs."