Can green buildings command a premium in order to meet carbon emission targets?

  • 28 Jul 2014

Commercial challenge

The research highlights that commercial property is lagging behind the residential sector and presents the greater challenge as it is fragmented. There are currently 1.4 million commercial properties in the UK to deal with.

Nearly 80% of these properties are less than 300m2 in size while less than 1% are 10,000m2 or more in area. While retrofitting larger properties will have significant energy and emissions gains with the scale and value of these properties permitting the requisite improvement expenditure, the real challenge comes in upgrading the myriad of small properties with less capable financial profiles and individual planning, technical and title issues.


In an independent survey undertaken by the University of Reading, 65% of a cross-section of industry participants cited the cost and value of retrofitting as the primary barrier to adoption. Most building owners still have only a poor understanding of the cost benefits of retrofit initiatives. Importantly, organisational barriers and lease structures were also cited as significant impediments.

It follows that wholesale retrofitting in the commercial property sector may require considerable changes in education, management structure, leasing legislation and landlord/tenant relations.


While residential is leading the way, with all new build having to conform to EPC ratings, this sector will still present a challenge. Over 80% of the 2050 housing stock in the UK has already been built and there are around 8.5 million dwellings more than 60 years old. In total, over 25 million properties will need a degree of retrofit by 2050.


A major contributor to the task ahead is emissions which are described as a huge issue. Energy and emissions vary dramatically with building type – and most landlords have yet to complete an energy/emissions audit. There have been recent improvements in the total number of emissions but the research concludes that this reduction is likely to have been driven by the banking crisis/recession rather than
a lowering in real terms.

Ian Peck (pictured), partner at Bidwells who presented the research at the recent Retrofit Conference asked: “So is there a green premium? It’s a big question and we don’t have an answer – yet. There is no reliable, long-term evidence of a green premium in the UK – although there appears to be more in the residential market than commercial.

Green premium

“However, we do know how the market perceives the key benefits of green building from a 2012 survey: Lower operating costs; higher building value; certification/accreditation; future-proofing; tenant education; higher rents; tenant productivity and higher occupancy rates.

“Sustainable assets simply make good business sense. Sheltered from obsolescence, high operating costs and brown discounts, developing green buildings is really about developing quality buildings. The greatest risk for us is long void periods, therefore non-green assets make no sense. For a few percentage points on the cost of construction or refurbishment, you have a product which actually appeals.


“For investors, superior risk-adjusted returns from energy efficient assets should provide a financial incentive to allocate investment to assets which are more energy efficient. From the occupiers’ perspective, operating a more energy efficient building may increase productivity, reduce running costs, meet corporate social responsibility objectives and attract financial incentives.

“There’s no doubt that retrofit has yet to take hold in the commercial market although awareness, accreditation and attitudes are gradually shifting. Some people have likened it to the building equivalent of the seat-belt, requiring a sea-change in attitude which will need to happen to meet the current targets set.”

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