Real Estate update and 2025 expectations

Last year brought about major political changes in the UK. Amongst many pledges by the UK’s new government, the following are certain to have a significant impact on commercial real estate for the years to come:

• supporting more housing and infrastructure across the country through reforms of the National Planning Policy Framework (NPPF); and
• advancing the carbon net zero target through reforms of the Energy Performance of Buildings (EPB) regime

Reforms to the National Planning Policy Framework (NPPF)

One of the first tasks attended to by the new government was launching a consultation on the proposed reforms to the NPPF which we reported on fully in the following article Planning reform: what to expect from the new Government plans? – Clarkslegal LLP.

The consultation closed on 24 September 2024 and the government’s response together with the updated policy have now been published.

Many of the proposed changes deal with the housing supply such as introducing a new standard method for assessing housing needs or amendments meaning that brownfield development is to be approved unless there is a risk of substantial harm.

In respect of the infrastructure, the NPPF is now updated to require planning policies to identify suitable locations for laboratories, gigafactories, data centres, digital infrastructure, freight and logistics which aligns with the government election pledges to support the needs of a modern economy.

Further changes to the NPPF are in respect of the public infrastructure to ensure that: ‘Significant weight should be placed on the importance of new, expanded or upgraded public service infrastructure when considering proposals for development’.

With regards to the green energy sector, the NPPF is amended to support planning applications for all forms of renewable and low carbon development without having to evidence the overall need for renewable or low carbon development.

Proposed reforms to the Energy Performance of Buildings (EPB) regime

Buildings are said to be the cause of the significant proportion of the UK’s greenhouse gas emissions and this statistic is at the centre of the government’s plan to reform the current regime in aid of better understanding and managing of the energy performance of domestic and commercial buildings.

The EPB regime was introduced to improve the energy efficiency of buildings and reduce their carbon emissions with the relevant legislation, the Energy Performance of Buildings (England and Wales) Regulations 2012, being now over a decade old. The energy performance certificate (EPC) system, introduced a few years earlier, has become principal means for assessing the buildings energy performance and has been extensively used including beyond its original purpose.

The background to the proposed reforms is that the EPC metrics are to become of assistance to a wide group of users, including building owners, tenants, landlords and lenders assisting with finance for energy efficiency improvement, whilst presenting the necessary information in an accessible and understandable way.

In light of the above, the government has launched a consultation on the proposed reforms. The consultation is to close on 26 February 2025 and covers the areas such as, amongst others, improving the data usage of energy certificates, revising requirements for EPCs and updating EPC metrics.

Any changes to the EPC metrics are envisaged to be introduced in the second half of 2026.

The EPC in its current form sets out a number of various metrics about a building’s energy performance with the EPCs headline metric being the main indicator of the overall energy efficiency. The headline metric for domestic buildings is the Energy Efficiency Rating (EER) which is calculated using modelled energy costs per square metre whereas, for non-domestic premises, the Environmental Impact Rating (EIR) headline metric is modelled using carbon dioxide emissions per square metre. However, both metrics can lead to misleading outcomes and can become outdated quickly as well as they are being influenced by factors beyond the building owner’s control.

The government’s proposal is to introduce multiple metrics on EPCs and the following potential measures are being considered:

• Energy cost
• Carbon
• Energy use:
• Fabric performance
• Heating system
• Smart readiness

These metrics together are to aid better understanding of the financial implications of energy efficiency in order to allow for informed decisions about potential improvements, tracking of the carbon emissions, assessing the building’s thermal performance whilst promoting well insulated spaces heated by cleaner heating technologies.

The domestic EPCs would use four headline metrics; ‘fabric performance’, ‘heating system’, ‘smart readiness’ and ‘energy cost’ as headline accompanied by secondary metrics for the full picture.

For the non-domestic premises, the carbon metric is to be maintained as the single headline metric for the time being. This would provide consistency and allow for the continued aligning with other standards such as minimum energy efficiency standards in the short term. That said, the government invites views on whether the proposed new metrics should also be applied for non-domestic buildings.

If you need any advice, please do not hesitate to contact a member of the Commercial Real Estate team.