Green rules venture into the unknown

May 7 2008 By Richard Farrey

The drive towards renewable energy could add up to 30% to building costs this year, warns Richard Farrey.

IN light of legislation introduced last month, property developers and landlords need to put sustainability at the top of their priority list if they are to attract quality tenants. However, going green could cost developers because of higher construction costs, which could lead to a fall in supply of commercial properties.

I believe much will depend on demands imposed by councils on how green any development’s supply should be. It is feared this could lead to inconsistency between different areas. A 10% renewable energy figure is becoming more widespread and several councils are looking at doubling the demand.

It will continue to be a local authority-led initiative, with the Government happy to leave it to councils to progress and police it. But this will mean increasingly variable standards and uncertainty in authorities that are not clear about requirements.

If the top level is introduced, you can add anything up to another 30% to the normal overall build cost. Other developments in 2008 will include the final phase of introducing energy performance certificates in October, when all buildings smaller than 2,000sq ft will be included for the first time.

Other benchmarks could also be introduced to measure a building’s sustainability, not just carbon use. This will affect not only buildings renewed or developed during the year, but increasingly the remaining 98% and how these buildings can be improved and counted as sustainable. These Government demands will inevitably affect the market, with occupiers adopting greener policies and snubbing older, energy-hungry buildings, and rental growth will increasingly depend on EPC rating.

This will mean developers and speculators focusing on well located older buildings where profit can be made by improving the energy rating and making a secondary building acceptable to prime buyers. While the supply of new commercial premises may fall, new opportunities will be created with current properties, enabling some investors to profit through specialist refurbishment.

We forecast building and tender prices excluding green costs would rise 5.5% this year, compared with 5.6% in 2007. That is lower than the average of other forecasts and based on a potential decline in development and restricted Government spending.

Richard Farrey is head of building consultancy at King Sturge in Newcastle.

PAGE TWO: Design must be increasingly innovative