EPC 2030: the winners and losers of a minimum grade B rating

New energy standards spark investment changes in UK commercial real estate.

The government’s updated minimum energy efficiency standards for commercial real estate, mandating a grade B rating, have sparked concerns among investors about the future of UK commercial property. These stricter regulations could result in many offices becoming non-compliant, potentially removing a significant portion of spaces from the market and increasing uncertainty for landlords and tenants alike.

According to Savills, 73% of office spaces in London are grade D or lower.

The rest of the UK is not looking much better, with 70% of all commercial real estate buildings having grade C or lower.

Who will be most affected by the EPC 2030 standards for commercial real estate, and who is set to benefit?

Commercial occupiers:

Commercial real estate owners often lease office spaces with an EPC rating of grade C or below. To comply with new standards, they will need to invest heavily in renovations and fitout services to avoid leasing restrictions. However, rather than absorbing these costs into their balance sheets, it is expected they will pass on the expenses to tenants through increased rent prices. This could create additional financial pressures for businesses renting office spaces.

Commercial fitout contractors:

Businesses occupying office spaces face a critical decision: remain in their current locations and pay higher rents or relocate to increasingly scarce grade A or B offices. With limited availability and the pressure of meeting 2030 sustainability standards, renovation emerges as the most practical and cost-effective solution.

The Beneficiaries:

While the commercial real estate market faces challenges for both occupiers and landlords, fitout companies are emerging as clear winners. Over the next five years, demand for their services will surge as landlords and tenants race to improve energy efficiency.

With limited supply, fitout companies are becoming the go-to solution for sustainable office upgrades, and prices already reflect this demand. According to Cushman & Wakefield, medium-specification office fitout costs in London increased by 4% from 2023 to 2024.

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