A long path to wishy-washy legislation?

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Anne-Sophie Blin
EMEA Upstream Sustainability Services

In a context of slow growth and increased competition, energy efficiency is probably the least of European governments’ priorities. However, I think that we are facing a structural change driven by market demand and increased transparency on assets’ energy efficiency performance.

Take the French Government who set about producing a roadmap for sustainability through ambitious Laws enacted in 2009 and 2010 (most commonly known as “Grenelle Laws”). One of the main upcoming decrees that is likely to have a major impact on commercial real estate in France is the obligation for all owners of commercial assets to undertake energy efficiency renovation work on their assets between 2012 and 2020. According to the draft proposals for this decree, the worst performing properties will have to improve their overall energy efficiency for both landlord and tenant areas by at least by 25% by 2020, with a baseline set between 2006 and 2011 (and this objective is likely to be revised upwards).

Although the proposals are less stringent than originally anticipated, the legislation will set important milestones for the building sector and it will be interesting to watch market players’ behaviour.  Some landlords are likely to renovate to the minimum standards whilst others may go above and beyond to compete for the best occupiers who want the most efficient buildings. This is where a market for premiums could open up. The acquisition of poorly performing assets might even represent some attractive opportunities for investors, although for those assets that are poorly located, it will be difficult to recover that capital investment in a higher rent. So, the newer, better located assets are more likely to attract a higher rent or better tenant.

The success of this legislation will depend greatly upon setting the appropriate balance between the technical feasibility and financial viability of the required capital investment. However, if the government gets the financial incentives right through tax deductions and requiring incentives to be included in agreements between landlords and tenants on leases, asset value could be affected, particularly as energy efficiency renovation work starts being factored in investment appraisals. Whether the final decree is as ambitious as anticipated remains to be seen; but with increased transparency on asset energy efficiency, who can believe that property owners will be able to get away with ignoring the energy efficiency performance of their assets?

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