Long leases to established business tenants, plus the fact that tenants normally take care of maintenance and repairs, could give the impression that commercial property investment is a ‘hands-off’ business.
The Covid-19 crisis however, shows how external factors can dramatically affect the prospects for commercial landlords. Whilst the Corona Virus, the financial crash of 2008 and 9/11 aren’t things that you can necessarily anticipate or control, there are other matters, which we can see and should prepare for, such as climate change and environmental protection.
Climate Change and Energy Costs
Regardless of differing views of their efficacy, EPC ratings, for example, have a much greater significance for property owners now than they did when they were introduced 12 years ago. Potential tenants are more aware of their responsibilities and many will have some form of ‘green pledge’ that would make premises with a low or moderate EPC rating unattractive. And even the less environmentally aware can see the relationship between EPC ratings and energy costs.
Before 2018, landlords would have taken a commercial view on any investment that may be needed to improve the EPC rating of their property, based on maintaining the market attractiveness of the property. However, decision making is rapidly being taken out of the hands of landlords, as the government takes measures to impose minimum EPC ratings on all commercial properties as part of their commitment to reducing carbon emissions.
New regulations require landlords to achieve a B rating or better by 2030, compared to the current E rating. It is yet to be seen if this policy will change in the light of the potential pressures on commercial property landlords post Covid-19, but if not landlords must now plan for significant upgrading costs if they need to achieve the new upgraded ratings being imposed. This could include new lighting, HVAC, insulation, glazing or renewable energy. The costs of the different measures will vary greatly and a commercial property agent and surveyor will help you evaluate the business case for different options so you make the right choice.
Market Changes Speeding Up
Keeping abreast of economic drivers, legislation, changes in social attitudes and working patterns allows commercial landlords to make smarter investment decisions. This is what characterises the more successful commercial landlords. They have an informed and commercially-driven strategy to improve their properties to stay in-step with any external factors that can be known and predicted.
It’s almost certain that the commercial property sector will see major upheavals and change in the next decade, well beyond any EPC rating changes, that need to be anticipated and planned for to maximise occupancy and yields.
It’s hard to think of a time when it’s been more important for commercial landlords to have an established investment strategy and seek out expert advice on how to protect and maximise the value of their investments. The Hicks Baker team is here to help.
Please visit our website, www.hicksbaker.co.uk or get in touch if you would like more information or an informal discussion on commercial property management – email: g.blagden@hicksbaker.co.uk
