Jun 7, 2024
It’s clear why energy efficiency matters for residential property investors. Nobody wants to live in a house that costs a fortune to heat and cool.
But it’s less clear how much it matters to commercial investing. It’s a different kettle of fish.
That’s where this post can help. We look at some of the reasons why commercial property energy efficiency matters for investors in this market segment, and how it can help them thrive long-term.
The primary benefit of efficient buildings is the fact they use less power. Investors themselves don’t care about this much but their tenants do. Business clients are constantly looking for ways to reduce spending and lower their utility bills. If they can do that by moving into a more energy-efficient building, they will.
These cost savings can be substantial. Some office-heavy businesses can see a doubling of their profits because of the effect of lower energy bills on their margins.
You can check the building passport to see more details about how it is using energy and applying energy-saving techniques. These provide more insight into how the structure performs, letting you provide prospective tenants with more data before they sign an agreement.
Another benefit of commercial property energy efficiency is the higher value of the buildings. Commercial investors must pay more money upfront, but they are also more likely to see a higher return compared to buildings with no energy conservation abilities.
The main reason for this is the future rental returns the property will likely generate. Businesses are often willing to pay more if they believe a building will help them cut their energy spending.
However, increased value can also come from other sources. Many businesses are interested in ESG and are prepared to pay extra for accommodation that meets their economic, social, and government standards.
It can even make borrowing against the property easier. Banks may be willing to lend larger commercial mortgages to occupying companies, allowing you to make bigger profits when you come to sell.
It’s worth mentioning that energy-efficient commercial property also enjoys higher tenant demand. Lots of companies are seeking sustainable and eco-friendly solutions to help them appeal to eco-friendly audiences and employees.
Naturally, finding them is challenging, so the rental prices in these spaces increase. There’s only a limited number of these offices, pushing costs up.
For tenants, this is bad news. But because there is high demand, it means more people are chasing the same units. As such, it’s excellent news for you. Companies competing against each other are more prone to bidding up the price and enabling you to charge more for your units.
Finally, energy efficiency matters for commercial property investors because of regulations. Government restrictions can sometimes prevent or impede development on a property.
Depending on where you are, you should check these in advance. Most countries have onerous net zero restrictions, so be careful and check this before you take the plunge and go ahead and buy.