Only a third of office occupiers in the North West know how energy efficient their office buildings are despite Minimum Energy Efficiency Standards (MEES) coming into effect from 1st April 2023 – says a new report by Irwin Mitchell.
The MEES legislation means that from 1 April 2023, property owners must not continue to let properties that have an EPC rating of F or G (unless they have an exemption) and all let properties will need to have a minimum EPC rating of E.
Despite the rules only being months away, Irwin Mitchell’s study – ’Redefining the Office – A report on office occupier trends’ – reveals that only 32% of the 500 UK office property decision makers questioned, said they know the Energy Performance Certificate (EPC) rating of their main office building. A similar percentage (31%) said they know what EPC rating their office needs to be in April.
In the North West, 33% said they knew the EPC rating of their main office building and only 24% said that they know what it needs to be.
Concerningly, just under a quarter (22%) of the property decision makers surveyed in the North West said they do not know their office’s EPC rating at all. Additionally, 9% of respondents in the North West said they do not understand EPC ratings.
According to Tim Rayner, Joint Head of Real Estate Disputes at Irwin Mitchell: “These figures should raise eyebrows, particularly given the changes come into force in April and with further new Minimum Energy Efficiency Standards (MEES) legislation down the line. For example, for all new tenancies beginning in 2025, the government is keen to change the minimum rating to a C.
“Office occupiers really need to keep an eye on the situation. Whilst the cost of upgrades is in theory an issue only for landlords, some landlords may prefer not to incur that costs at all and instead try and end the lease. Those landlords who intend to carry out the upgrades may not only want access to the premises and cause potentially significant disruption but may try and pass on the cost of the upgrading either via the service charge or by seeking to include additional obligations in new leases, making tenants expressly liable for such costs. The MEES deadline is fast approaching and therefore it’s important that tenants are forearmed and ensure, for instance that their leases provide the controls they need”.
The survey also revealed that a large number of businesses are on the move with many looking for higher quality space than they had previously. 65% of respondents in the North West, compared to 76% nationally, said they have either moved in the last 12 months or are considering moving now with 43% saying they either took on more office space in the last 12 months or plan to in the future. A fifth (22%) said they had reduced or are planning to reduce their space.
The main driver for change among businesses in the North West appears to be having greater flexibility in how and where they work (30%), followed by reducing energy bills and improving energy efficiency (24%) and thirdly to reduce rental costs (20%).
This is borne out in terms of the three most desirable aspects of space businesses wish to move to, with the highest vote in the North West going to flexible office space such as WeWork or Regus (39%) and space in a hub where there are other similar industries (31%).
28% of businesses in the North West also said they wish or plan to move to higher quality / Grade A space.
As Sarah Swann, Real Estate Transactions Senior Associate in Irwin Mitchell’s Manchester office added: “This demand is reflected in what we are seeing in the property markets today. As businesses adapt to new ways of working, try to entice workers back to the office and cope with higher energy costs they increasingly want higher grade space, better facilities and greater energy efficiencies in the buildings they occupy”.
Other key findings of the survey were:
- 76% of respondents in the North West said they’d be prepared to pay a higher rent for office space which reduces their organisation’s impact on the environment. This was lower than those respondents in Greater London (91%) and nationally (84%). However similar to elsewhere in the country, businesses in the North West wanted some reductions in their service charges to make up for paying higher rent.
- 46% of respondents in the North West (39% nationally) said the UK economic downturn was the biggest threat to their business in the next 12 months. This was followed by the threat of rising costs (43%) and inflation (41%). Interestingly 15% of respondents in the North West (and nationally) still saw the pandemic was still a threat.
- Overall smaller companies across the UK are particularly worried by rising costs. Over half (56%) of respondents who work for a company with 10-49 employees said the biggest threat to their business in the next 12 months is rising costs, this is compared to a third (33%) of respondents who work for a company with 250-500 employees who said the same.
- Only 7% of respondents in the North West said they had no particular worries in the next 12 months.
