Environmental performance in office buildings: Why should landlords care?

8 minute read
30 May 2024

The real estate sector is one of the largest contributors to greenhouse gas emissions in the UK, thought to account for around 25% of the total, yet it also represents one of the least regulated. This may however be about to change. In 2022, Friends of the Earth and others managed to successfully persuade the High Court that the government's Net Zero Strategy, which set out plans to decarbonise the economy, failed to meet obligations under climate change legislation.

Other than the Energy Performance Certificate (EPC) regime and the Minimum Energy Efficiency Standard (MEES) Regulations, there is not a great deal of UK legislation regulating the environmental performance of commercial property. Many also question whether EPCs are fit for purpose. In order to reach anywhere close to net zero in accordance with government targets, new regulation is required. Environmental accreditation schemes are one area that may receive greater attention.



What are accreditation schemes?

Accreditation schemes are a collection of voluntary environmental performance standards which, if complied with, allow a building to claim they meet a certain environmental or sustainability rating. There are a whole host of different schemes but in the UK there is currently little by way of an accepted industry standard.

Here we consider two schemes that are most commonly adopted in UK office premises.

NABERS

NABERS is the National Australian Built Environment Rating System and in Australia a rating is required for sellers or lessors of office space 1,000 square metres and above. A NABERS rating can be produced in respect of tenants occupying a single office space within a multi-tenant building and / or in respect of tenants occupying the whole of a building. In the UK the scheme remains voluntary, but several large UK based organisations are signed up under the aegis of the Better Building Partnership.

Unlike EPC ratings, which are based on building design and the predicted energy usage, NABERS measures the ongoing operational performance and in-use energy of a building using actual utility consumption data, factoring in hours of operation, area and location. NABERS collect the data over the course of a 12-month period, to provide a rating reflective of the energy consumed by the office on an annual basis.

Aspects such as thermal comfort services (i.e. humidity and air temperature), indoor air quality, acoustic comfort, artificial and natural lighting elements are all areas that are considered by NABERS, with the outcome being a rating between one to six stars. A three star rating is deemed 'market average' while a six star rating is 'market leading'.

NABERS is a tried and tested system in Australia and over 20 years has helped to achieve a 33% reduction in energy usage over all buildings certified. Figures produced by JLL show that properties where the NABERS rating is four and a half stars are achieving average yield which is 8% higher than unrated buildings, on a per square metre basis. This premium jumps up to 18% among those properties with five and six star ratings.

WELL Building Standard

The WELL Building Standard, delivered by the International WELL Building Institute, is the first global rating system to focus solely on enhancing health and wellness.

WELL serves as a vehicle for buildings and organisations to deliver "more thoughtful and intentional spaces that enhance human health and well-being". It has been developed for the built environment to change occupant habits and encourage healthy life choices, something that is increasingly seen as vital to companies who are keen to retain a motivated workforce.

WELL includes a set of strategies that aim to advance human health through design interventions, operational protocols and policies and through fostering a culture of health and well-being. There are ten key concepts WELL focuses on to ensure a holistic and effective sustainability outcome, these being: Air, Water, Nourishment, Light, Movement, Thermal Comfort, Sound, Materials, Mind and Community.

The WELL scoring system is points based, and a project is scored anywhere between 0 and 100, with no more than 12 points being attainable per concept and no more than 100 points attainable in total across the ten concepts. Certain features are mandatory in order to achieve any form of WELL certification, whereas others are optional and increase the number of points that may be granted. A 40 points score grants a Bronze certification, 50 grants silver, 60 grants gold and 80 points grants platinum.

Similar to NABERS, WELL has proven itself to be scalable and globally applicable. It is grounded in medical research and is designed to cultivate more sustainable workplaces.

Why should accreditation schemes be on a landlord's radar?

Corporate demand is already leading the way with environmental, social and governance (ESG) issues becoming of ever increasing importance to company boards.

Market evidence already suggests that buildings which benefit from an accreditation scheme rating attract a premium in terms of both rental uplift and capital values. Tenants who have environmental and sustainability ambitions are increasingly seeking out new premium 'green' office spaces, particularly for flagship headquarters. Accreditation schemes enable sellers and landlords to demonstrate the environmental capability of the building in question, reducing the need for additional surveys and transaction delays.

Are your contracts ready?

For landlords interested in attaining (and maintaining) accreditation scheme ratings, it is worth considering how the requirements of the schemes affect leasing and other contractual arrangements.

First, it is worth noting that a degree of cooperation between landlord and tenant is always going to be required. Arrangements where only one party is committed to 'going green' are never going to produce a wholly successful outcome. Secondly, the parties may wish to consider costs and who is going to be responsible for what, both in the shorter and longer terms. Green lease wording has evolved to try to capture and allocate responsibility for some of the main key elements which may impact energy efficiency and accreditation scheme ratings.

We have written recently in more detail about what is meant by a "green lease" in 2023, and the changes which have been brought about as a result of increased industry focus, in particular via the BBP Green Lease Toolkit. Green leases now regularly contain:

  • restrictions on alterations which could impact energy efficiency;
  • data sharing obligations;
  • provision for the supply of renewable electricity;
  • biodiversity obligations;
  • strategies for reducing water usage and non-recyclable waste; and
  • requirements for multi-party cooperation on sustainability matters.

Whilst green lease provisions may not necessarily be required in order to achieve or maintain a certain accreditation scheme rating, they serve as an aid to assist with strategy. Landlords will want to ensure that any assets that have achieved a high energy efficiency rating, maintain that rating. The best way to do that is to ensure every occupier is on board with and signs up to do their bit towards reducing emissions and reducing waste. It is only by working together that we are ever going to approach anything like net zero.

For more information about accreditation schemes and how they might work with leasing strategies, please contact a member of our Offices team; Felicity Lindsay or Jane Reyersbach.


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