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OISD research for IPF shows that Energy Performance Certificates will impact on commercial property prices

October 2007

IPF Research Findings

The latest research findings by OISD (ILM) for Investment Property Forum (IPF) on Energy Performance Certificates (EPCs) show investors expect ‘price chipping’ to emerge during rent and lease negotiations as a result of poor building energy ratings, but that the market does not yet see a clear business case for upgrading stock.

In this latest report, work by Oxford Brookes University and King Sturge (published by the Investment Property Forum Research Programme) shows the market remains unprepared for the implementation of energy performance certificates and unconvinced of a business case for upgrading stock. According to Miles Keeping, Partner at King Sturge LLP: “There is still no evidence to suggest more energy efficient buildings will command higher rents but there is an expectation amongst investors that energy inefficiency will lead to ‘price chipping’ during rental negotiations. This could lead to less efficient buildings incurring diminished rental growth”.

Businesses that are gearing up for implementation are being hampered by the lack of key information regarding the energy performance certificates, including the setting of the A-G rating bands. Uncertainty also remains regarding the availability of sufficient numbers of assessors. Prof Tim Dixon of Oxford Brookes University said “The same problems that have hampered the residential market seem likely to hamper the commercial market: the harsh reality is that a continued shortage of assessors could potentially hold up the ambitious timetable for EPCs”.

Evidence was found of a continuing market perception that the capital-expenditure required to upgrade existing buildings remains too high for it to be economically feasible in most cases. Government estimates suggest the introduction of EPCs for commercial buildings will initially cost approximately £102m in 2008 in England and Wales. This represents the equivalent of about 2.5% of annual property development and improvement investment expenditure for the whole of the UK.

Other issues raised by the report include the considerable variation in implementation and timing across Europe: for example, many countries are adopting only EPCs and not operational energy certification, which the UK has committed to introducing. This will lead to variation in obligations and, potentially, management costs across European property portfolios.

Philip Parnell, Partner at Drivers Jonas and a member of the project steering group says, “This research is an important piece of work. As market conditions continue to become more challenging and increasing focus is given to a property’s ‘blemishes’ it is quite conceivable that a perceived poor energy rating could be used to chip either purchase or rental bids. This presents valuers with the challenge of interpreting such market reaction when analysing comparables, and assessing both the impact on void/marketing periods and resulting effective rents for lettings from a valuation standpoint.”

This research was funded by the IPF Research Programme 2006 – 2009.

For more information please contact:

Tim Dixon
Co-Director of Oxford Institute for Sustainable Development Oxford Brookes University
01865 484202

Notes to Editors

The Investment Property Forum has over 1,800 individual members drawn from a wide range of different professional communities including accountancy, banking, fund management and surveying. The Forum’s mission is to improve the awareness,

understanding and efficiency of property as an investment, for members and others in the wider business community, including government, by:

Undertaking research and special projects;

  • Providing education; and
  • Encouraging discussion and debate

The IPF Research Programme 2006-2009 is the largest property focused research fund in the UK. It is supported by 24 businesses and undertakes a variety of property investment based research projects in support of the IPF goals. For further information on the programme please contact Louise Ellison, Research Director or visit the IPF website:



The executive summary is available here (PDF).

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