Portfolio energy performance will soon be coming back in the news as 2018 heralds the dawn of a brave new Minimum Energy Performance Standard (MEPS). It effectively means 31% of the built environment becomes unlawful to buy, sell, rent of lease. That’s 1 in every 3 buildings. Imagine that for a moment: 85% of the office space in London is rented. That means tens of thousands of companies becoming homeless, were this legislation enforced in its current outline. Common sense says the legislation will be watered down, pushed back and diluted. This is inevitable as it is impossible to enforce and police. However, its objectives and ethos are solid and admirable, in principle. Improving buildings, making them more efficient means they become more desirable to rent and own. Desirability drives price and value up. When buildings cost less to operate, their Per sqM-rental incomes can be increased.
The challenge for you as the portfolio owner or manager is one of optimising budget: Where do you start? Whom do you trust? Is there low hanging fruit or quick wins out there? What technology exists than can help?
Another consideration is data. What do you really know about your buildings? Would you bet your mortgage that whatever you know is actually accurate? The stakes are high.
Portfolio Energy Performance: Circumventing legislation?
As a company, we have been surveying buildings for 15 years using infrared technology to detect defects and quantify energy loss and we have yet to find a building anywhere in the country that matches up to the drawings and specification intended at its birth. Change of usage, extensions, refurbishments, dilapidations, cowboy buildings, adhoc maintenance, all contribute to a portfolio dataset that is far from perfect. Add in trying to meet legislative compliance on a shoestring budget and the whole thing goes pear-shaped very quickly.
Take for example EPC legislation, now almost 10 years old, meaning the early ones need re-doing next year, just like MEPS, its intention is solid and admirable. The implementation and adoption however has been less than perfect.
A client once pointed out a multi-storey office block he owned: 1960’s construction, precast panels, single glazed aluminium windows, asphalt roof with no insulation and the original HVAC system from the late 60’s. Located in a city centre, it was fully occupied with tenants. £250 bought him an EPC that said the building was C-rated. The client asked me: “what would you do in my shoes? Tell every tenant to move out for a year whilst I get the roof, walls and windows and heating system upgraded, or turn a blind eye?”. I pass the building regularly and I can tell you a few years on since that conversation, the building looks exactly the same and it remains full of tenants.
Under MEPS that bury-your-head-in-the-sand approach is dangerous. If there is finance in place to pay for the building – commercial mortgages for example – the bank reserves the right to review that mortgage every two years and are within their rights to withdraw any outstanding monies with just 7 days notice. It would be best then to mitigate that risk.
3 ways you can maximise your property portfolio energy performance
1. Understand its true condition
Get your data licked into shape and see opportunities arise that may surprise you. Poor data means a poor understanding of the challenge ahead and leaves you exposed. It’s just too dangerous to contemplate. We have already written extensively on the subject of enhancing property portfolio starting with data collection.
2. Leverage any and all available funding to retrofit
Fast forward to a future where your data is full and accurate. Now you can simulate savings, programme works, tender work packages, manage their implementation and see the savings from your efforts. Managing the retrofit of course means revenue for the managing agent or surveying practice, but the portfolio owner will love you for it. You are reducing risk, being professional and optimising his budget. Contractors will love you as you reduce their cost of sale and you tell them exactly what you want and need. That saving to them ought to be passed onto you.
There is plenty of funding out there for retrofits. ESCO companies will 100% fund retrofits that deliver results at no CAPEX to you. Walls, windows, roofs, lighting, draft proofing, insulation – you name it, funding is easily secured if the business case stacks up. Organisations like the Carbon Trust and Energy Saving Trust have interest free money available to fund measures – you simply need to ask.
3. Constantly invest in the fabric
This sounds rather obvious, but building fabric degrades. Refurbishments have been an integral part of portfolio management since buildings have been erected.
Roofs are notoriously defectuous and won’t last for ever. You need to set aside money to patch and repair when the roof reaches the end of its life expectancy and budget for a total replacement. Ignore this reality and you will be faced with years of leaks, inefficiency, tenant complaints and stained ceiling tiles. Maybe tomorrows’ building will be owed by the manufacturers who will simply lease the fabric, replacing these buildings every 25 years and bearing the maintenance costs along the way. Until that day, it’s important to understand the value of a solid maintenance schedule and refurbishment programme.
Silicone seals around windows only last about 10 years, ignore this fact and water will find its way through and into the fabric, perhaps invisibly for years. Sooner or later someone will spot a damp patch somewhere and you will end up chasing it for years before rectifying the cause. Several thousands of pounds spent where only a fraction could have been spent as a preventative measure.
Invest today to save tomorrow.
Happy building = happy tenants = happy owner= happy cash flow for all.
What is best practice then in this cash-strapped, modern, post credit-crunch, Brexit’d devolved country of ours? Traditional surveying techniques may help and a fast emerging technology such as infrared or IRT, will definitely see problems the naked eye can’t. Huge portfolios can be assessed very cost effectively these days. Once data is captured, cloud based software can crunch the numbers, backfill the blanks in the assumptions, validate the data and enable rapid low cost simulations.
The internet of things will only improve this industry. Buildings will contact you and ask for help themselves. This already happens in aviation today. RollsRoyce engines talk to a central database and report health issues to an unmanned database. The software arranges an engineer, co-ordinates with a warehouse and ensure the right part is at the right airport on time to service that engine efficiently. Buildings will go the same way. It’s as inevitable as it is exciting.
Are you managing buildings, as a portfolio or facilities or estates manager? Are you concerned by the forthcoming MEPS and need to take action? Contact us today to discuss your challenges and hear how we can help you.