Efficiency overhaul needed in London

LONDON: Savills' latest Opportunities in Green report estimates that 700 million sq ft of commercial floor space in London may need to undergo an energy efficiency overhaul by 2018.

According to Britain's Department of Energy & Climate Change (DECC), 62% of non-domestic properties are rented and of this, 18% have a rating below grade "E". Landlords left with a vacant space in the next five years would be advised to take the opportunity to improve the energy performance of their property.

Director of Savills building consultancy Michael Pillow said in a statement recently, "If the legislation goes through, leasing of a subgrade "E" standard property will become unlawful from April 2018."

Refurbishing beyond basic levels reduces void periods in a property as firms increasingly show a preference for greener buildings. This may not translate into a higher rental premium but it will improve the long-term investment value of a building, said Pillow.

Marie Hickey of the Savills research team said: "Its the avoidance of the 'brown' discount rather than the hunt for the 'green' premium that will drive investors/landlords to improve the efficiency of their portfolio."

The UK market has not yet seen a clear hike in values when comparing higher-ranking green office properties to that of lower grades. US and German markets have shown evidence of clear demand shifts towards green office products with a recent report suggesting demand has tripled in five core German markets.

Savills latest green office bulletin covering the German market shows a significant hike in demand for "green" office space in recent years. The annual take-up of "green" office space in the top five German markets (Berlin, Düsseldorf, Frankfurt, Hamburg and Munich) has tripled from approximately 50,000 sq m on average between 2005 and 2008 to 150,000 sq m in 2009/2010.

The €1.1 billion (RM4.52 billion) generated from sustainable office buildings on the German investment market in 2010 the transaction volume was more than four times higher than in 2007 (approximately €200 million) and the share of this turnover in the total office investment volume rose from approximately 1% to about 14% during this time.

The international real estate advisor suggests that both trends highlight that sustainable offices are no longer a niche product but will become market standard.

Jon Hutt, director of corporate real estate at Savills, added: "With the ever increasing costs of energy, early action to introduce green and energy saving enhancements is likely to give properties some advantage over more obsolete stock making them more attractive to occupiers and possibly enhancing rent and value."