A question on the minds of many sitting occupiers is whether their current office space will meet their future needs. The size, location and accessibility of their premises are all factors to consider. Facilities and technological infrastructure cannot be overlooked either. One of the most pressing issues on most occupiers' wish lists, however, is the sustainability credentials of their premises.
As mentioned in our article Stranded Assets – A Real Possibility, occupiers today have ambitious ESG targets to achieve and are increasingly concerned with the green credentials of buildings. They want to occupy prime buildings that are energy efficient and sustainable. They also want to attract talented employees who in turn want to work in buildings demonstrating that their employer has ESG on the top of its agenda.
Where a premises is not meeting all of an occupier's needs including its sustainability requirements, then the decision may be made to relocate. Given the current shortage of grade A offices, the main challenge here will be finding a prime office space in the right location. Such offices with excellent sustainability credentials will typically attract a "green premium".
If a premises is meeting almost all of an occupier's needs and its green credentials are the main outlier, then perhaps it is time to consider engaging with the owner of the building.
An occupier will be limited in respect of the extent of work that it is permitted to carry out to a premises, therefore, it will typically be the owner of the building that would carry out any upgrade works. If an occupier is nearing the end of the term of its lease or if there is an upcoming break option, this could be an opportune time to open up discussions with the owner, particularly in relation to the potential to renovate/retrofit the premises.
The reality is that where a premises is classed as a "secondary asset", it will likely be medium or deep retrofit works that will be required in order to significantly improve the energy performance of the building. Depending on the extent of the retrofit works required, an occupier may need to relocate to an alternative premises while the works are being carried out, which may not always be a viable option.
The cost of carrying out retrofit works and raising the funds to do so will pose a challenge for many owners. This will need to be weighed up against the return on investment, in terms of increased rental levels, which carrying out the works could achieve.
Proactively dealing with sustainability now and keeping up with the pace of changing legislation in this area will help owners avoid the risk of losing tenants and the ability to attract new ones. With the Energy Performance of Buildings Directive (Recast) having recently come into force and which is set to become law in Ireland in the next two years, dealing with the energy performance of buildings and actively engaging with tenants on the issue can no longer be put on the long finger.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.