Energy efficiency measures add value to UK shopping centres

Investing in sustainable features increases the market value of shopping centres in the UK, by up to and over 5%, according to new research from BCSC (British Council of Shopping Centres) and its research partner CBRE, the global real estate advisor.

For the first time there is research based evidence to support the real and tangible benefits of investing in energy efficient features to drive shopping centre market value. The research, undertaken by CBRE, spanning 35 UK shopping centres utilises valuation modelling to investigate the dynamic between energy efficiency, and associated costs, versus shopping centres’ asset value in relation to the premature scrapping of high energy equipments and replacement with new energy efficient kit. The concept is designed to decipher the impact on rents and yields for occupiers and owners of shopping centres, coupled with highlighting energy risks and driving sustainability awareness.

The results, which are backed by EU data, are most pronounced for older shopping centres (those over 25 years old) with potential gains of over 5%. For an average £100m shopping centre in the UK, this translates into a new market value of at least £105m when energy-intensive equipment is replaced with new apparatus that offers energy-saving features as standard. For relatively modern centres (less than 5 years old) the analysis shows a value gain of over 1% would be realisable. In essence, failure to undertake energy efficient investments, in whole or in part, would risk effective loss of value of £5m.

In addition, substantial savings associated with investing in new energy efficient equipment, come from both increased energy efficiency and lower maintenance costs. The biggest savings are derived from replacing the lighting, escalators, lifts and heating, ventilating systems, and air conditioning (HVAC) units, in that order. The combined impact means that by investing in replacement equipment the savings generated from operating and maintenance costs outweighs the total replacement cost. Lower operating costs reduce the service charge and this ultimately means that occupiers are willing to pay higher rents which will provide gains to the landlord driving an increase in value.

These findings cite the need for shopping centre owners to embed analysis of energy performance within the asset’s investment philosophy and due diligence process. For long-term asset holders, regular life-cycle assessments including benchmarking of energy costs against total service charge, and monitoring energy costs as a proportion of rental income, should be instituted. In addition, medium-to-long term energy plans should be routinely incorporated into strategic asset management planning and a shopping centre’s energy credentials should be viewed with risk in mind. Without implementation, value erodes.

Rebecca Pearce, EMEA Head of Sustainability, CBRE
Shopping centres are one of the biggest single contributors to CO2 emissions in the UK commercial property sector. To finally have evidence to prove that energy efficiency is not just a costly exercise without financial benefits is massive for our industry.

This needs to serve as a wake-up call to developers, investors, owners and all associated stakeholders that energy efficiency and sustainability isn’t a fad. It’s here to stay, adds real value when implemented properly, and is business critical to the lifecycle of shopping centres. Essentially, if no action is taken owners should expect value erosion or price chipping by future prospective acquirers.
Rebecca Pearce, EMEA Head of Sustainability, CBRE
Davinder Jhamat, Head of Research and Education, BCSC
What we have found with this research is that the maths speaks for itself. Investing in energy efficiency measures is a real tangible value enhancement tactic. For older shopping centres in particular, marked change in value can be achieved from relatively inexpensive replacement and upgrading work, and also from improved management and professional training on sustainability considerations.

This serves as the critical evidence base from which investors and landlords can take decisive action that will pay long term dividends – both in terms of their corporate social responsibility and their overall business strategy.
Davinder Jhamat, Head of Research and Education, BCSC