Stranded Commercial Real Estate Assets

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Commercial real estate owners are facing a stark and impending realisation, sustainable properties are rapidly gaining value, driven by evolving regulations and increasing market demand. Low-carbon, net zero buildings that offer superior occupant comfort, often certified by standards like BREEAM, are now considered highly desirable.

Conversely, properties that fail to meet sustainability benchmarks risk “stranding” – a scenario where assets lose economic value or become obsolete. In response, retrofitting existing buildings is emerging as a more prominent proponent to demolition.

The UK Sustainability Climate

The UK government has enshrined into law to bring all greenhouse emissions to net zero by 2050. While significant progress has been made in decarbonising the electricity grid, the focus is now shifting to the built environment, a critical next step in further reducing emissions.

According to the Climate Change Committee’s (CCC) forthcoming seventh carbon budget, buildings will need to contribute a quarter of the required emissions reductions between 2038 and 2042 within a balanced pathway. This demands a substantial increase in decarbonisation efforts across the construction and property sectors.

With 80% of today’s building stock expected to remain in use by 2050, retrofitting and improving energy efficiency are essential. The UK Green Building Council’s (UKGBC) Whole Life Carbon Roadmap outlines the path to success, calling for a 59% reduction in energy consumption in the office sector by 2050. Meeting these targets will require bold action, innovation, and a firm commitment from industry stakeholders.

Anticipated Regulatory Drivers

Impending proposed regulatory updates, such as the Minimum Energy Efficiency Standard (MEES), will be tightening requirements for Energy Performance Certificates (EPCs). It is currently proposed that non-domestic leasehold properties must achieve an EPC rating of C by 2028 and B by 2030, or alternatively to have registered a valid exemption.

Data from the Department of Levelling Up, Housing and Communities reveals that 70% of office space in the City of London currently has an EPC rating of less than B, with a similar percentage across the rest of London. This means the vast majority of non-domestic leased properties will need to be improved to comply with potential future MEES requirements. In real numbers, this equates to over half a million individual assets, representing a huge challenge for the built environment.

Market Demand Drivers

Sustainability is no longer just a buzzword, it’s a key factor influencing tenant decisions. Many large companies are striving to meet their own environmental, social, and governance (ESG) targets, making energy-efficient and environmentally responsible buildings more desirable than ever.

For commercial real estate owners and developers, investing in sustainable assets unlocks multiple advantages:

• Stronger Tenant Demand and Higher Returns: Sustainable buildings typically experience higher occupancy rates and can command premium rental income.

• Operational Cost Savings: Enhanced energy efficiency reduces utility expenses, benefiting tenants directly or lowering operational costs for landlords.

• Capital Value Retention: Properties with strong sustainability credentials are more likely to maintain and grow their market value over time.

• Regulatory Resilience: Buildings that exceed environmental standards are better positioned to adapt to tightening regulations, minimising future compliance costs.

• Access to Green Financing: Sustainability-backed loans often come with lower interest rates and favourable financing terms.

• Enhanced Brand and Reputation: Companies operating in sustainable spaces can demonstrate their ESG commitments, strengthening brand image and attracting like-minded employees, customers, and investors.

Retrofit vs. Demolition/Deconstruction

According to the Committee on Climate Change (CCC) the cost of achieving higher standards via retrofit are three to five times higher than for new buildings; however, when considered as a whole, the complete demolition/deconstruction of a building can be more expensive, especially if considering a building can remain occupied during a retrofit.

The cost of demolishing and disposing of building waste has increased and is envisaged to continue to rise. According to the CCC’s seventh carbon budget, the cost of retrofit will reduce over time as supply chains are established, as the benefits from learning-by-doing are gained and through economies of scale. Retrofitting also offers a more environmentally sustainable option, uses less resource and has less environmental impact – something planners are taking more seriously when considering planning decisions, with it also helping to retain the cultural or architectural value of an existing building.

Therefore, retrofit not only reduces whole life carbon emissions but also extends the lifecycle of valuable assets, making it a smarter and more sustainable choice for forward-thinking owners.

Types of Retrofit

The type of retrofit required will be defined by the level of intervention required as well as the timeframe needed to undertake the works.

Buildings that are already relatively energy efficient may require a “light” retrofit, where simple upgrades can be implemented and often no works to the façade are required. Light retrofits can achieve EUI reductions in the region of 37% (1).

“Deep” retrofits require substantial works to the façade and MEP services as well as the possible introduction of renewable energy generation into the building. Deep retrofits can achieve EUI reductions in the region of 60–65% (1).

The timeframe required to undertake the works is measured up to the year 2050, which could involve a single “all-in-one” retrofit or a “stepped retrofit” covering multiple interventions.

The Methodology

For commercial retrofits, a six-stage evaluation process is employed, in accordance with PAS 2038:

• Identifying the Stranding Risk: The economic stranding risk of the property will be identified by completing an initial assessment such as a CRREM assessment (see Figure 1).

• Gathering the Required Information: Detailed surveys will be undertaken as well as any relevant testing. The more that can be understood, the more accurate the end results will be.

• Benchmarking and Optimisation: Using the acquired information, we will create a dynamic energy model that closely matches with the energy consumed by the building. The most energy-efficient forms of retrofit will then be identified.

• Strategising: This is where all the aspects of the building are analysed and compared to the most energy-efficient forms of retrofit to identify the most optimal approaches. The most optimal forms of retrofit will be identified as a balancing act between choosing the most optimal payback, meeting embodied carbon limits, considering the risks and opportunities, identifying the consequential effects of each change on other performance requirements and achieving alignment with certification schemes.

• Executing: A project improvement plan will be created, statutory approvals sought as necessary, a project specification created and the design and installation works overseen and checked.

• Post Completion: A building logbook is created to identify how to operate and maintain the building. A process of fine tuning and evaluation will also be completed before the building is handed over to the client.

Selecting the Most Appropriate Forms of Retrofit

A common misconception is assuming the most appropriate retrofit solutions are the most cost effective at reducing the energy use intensity (EUI). This is known as the economic payback (see Figure 2). Whilst economic payback is important, the choice of retrofit will depend on a multitude of additional factors; these include the condition/remaining service life of the existing building façade and MEP equipment, planning restrictions, the level of occupation of the building and the availability of grants/loans, to name a few.

Sometimes, investigating and optimising how the building is used and operated often has the quickest and most effective immediate gains with minimal outlay; the UKGBC’s, Building the Case for Net Zero: Retrofitting Office Buildings (1), highlights that an average 26% reduction in energy usage intensity (EUI) can be achieved through operational improvements alone. The most appropriate choice is therefore a balancing act between the levels of economic payback, risk and opportunities.

Addressing the Elephant in the Room: Managing Retrofit Risks

Retrofitting can be a complex and challenging process. Recent headlines have highlighted issues like condensation, mould growth in cavity-insulated walls, and ventilation problems in insulated roof spaces. Additionally, noise and planning concerns surrounding heat pump installations are well documented, adding further uncertainty to retrofit projects.

One major challenge is the gap between a building’s design intent and its actual construction. Without accurate as-built information, it can be difficult to determine the materials, products, and systems in place. Conducting the right combination of surveys is essential to gather reliable data while remaining cost-effective.

Once the necessary information is obtained, a detailed evaluation is required to assess regulatory compliance, estimate the remaining lifespan of building components, and identify any potential defects. This process demands specialised knowledge and experience. Furthermore, creating an accurate, dynamic energy model to predict a building’s real-world performance requires both technical expertise and a comprehensive understanding of building behaviour.

Turning Challenges into Opportunities

Retrofitting for net zero doesn’t have to be daunting. In fact, it often unlocks a range of benefits beyond reducing energy use intensity (EUI). Financially astute property owners strategically undertake their retrofits to coincide with the natural replacement of MEP and façade components at the end of their service life, maximising both cost-efficiency and sustainability.

Furthermore, retrofit projects present a unique opportunity to address pre-existing issues, including defects, regulatory non-compliance, or structural and fire safety concerns. With our multidisciplinary team, these challenges can be resolved efficiently and collaboratively.

Beyond compliance and energy savings, retrofitting can enhance a building’s appearance, improve occupant comfort, and boost overall building performance. Enhancements to indoor air quality, daylighting, and overheating are just a few of the benefits. When aligned with sustainability certification schemes like BREEAM, and NABERS etc., these upgrades can further enhance the asset’s market value and appeal.

Our Unique Approach

We are one of the UK’s leading building design engineering consultants for the built environment, and have a perfect blend of knowledge, expertise and over 40 years’ experience of delivering projects. Our multidisciplinary teams understand the interdependencies of retrofit, crucial when understanding how changes to one part of a building affect another.

Risk management is at the core of what we do. With our design-led consultancy heritage, we bridge the gap between theory and practice. Our proactive identification and mitigation of risks ensures a smooth project delivery, no matter the complexity.

We understand that retrofitting is a phased process that requires careful planning and collaboration. Our role is to support clients through each stage, offering clear guidance and solutions tailored to the unique requirements of their buildings. This approach helps to manage both risks and opportunities, contributing to a more sustainable and resilient built environment.

– Gurprit Bassi

MSFE, MCIBSE, MSc

Director and Sustainability Lead

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Related Resources:

The Hidden Costs of Poorly Maintained Façade Access Equipment →

The Challenges of the Built-Up Wall →