Youssef Safadi, director of sustainability at Wallace Whittle, examines what the government’s latest proposals on minimum energy efficiency standards mean for commercial developers and landlords in England and Wales
If you are a commercial developer, landlord or property developer in England and Wales, EPC compliance and energy efficiency standards are either something you are actively planning for or something you are hoping will quietly go away. Neither inaction nor optimism is a strategy, and the challenge is bigger than many realise.
The government published its interim response to the long-awaited non-domestic Minimum Energy Efficiency Standards (MEES) consultation in June, confirming its intention to require privately rented buildings over 1,000 square metres in England and Wales to achieve EPC B from 2031, where cost-effective.
The direction of travel is becoming clearer, but important elements of the policy framework remain subject to further detail and legislation. Owners should therefore develop strategies that are resilient to regulatory change, rather than designing solely around one anticipated compliance date.
This is a significant development for larger commercial landlords and portfolio owners. But it would be a mistake to read the revised timeline as a reason to slow down. Research by the British Property Federation shows 81% of commercial buildings across seven major cities currently sit below an EPC rating of B, leaving around 190 million square metres of floorspace exposed to future regulation.
What it actually means for a building to become stranded
The term stranded asset is often used as shorthand for a building that becomes unlettable overnight, but that framing is too simple. In practice, stranding tends to occur progressively, through reduced achievable rents, longer void periods between tenancies, increasing difficulty in refinancing, reduced liquidity when selling and higher capital expenditure requirements as improvements become more urgent and more expensive. A building does not need to breach a legal threshold to begin losing value, and the market is already pricing in energy performance ahead of any regulatory enforcement.
On the regulatory side, it is worth distinguishing between the current position and the proposed future requirement. Currently, the minimum standard for non-domestic rented buildings in England and Wales is EPC E. The proposed move to EPC B for larger buildings by 2031 is not yet enacted and remains subject to secondary legislation, cost-effectiveness tests and exemptions.
Beyond the regulatory picture, the market risk is already real. Investors and institutional buyers are now applying their own Environmental, Social, and Governance (ESG) filters to acquisition decisions. A building with a poor energy rating may find it increasingly difficult to sell, refinance or attract quality tenants, and these pressures are visible in the market.
Most commercial buildings exist as financial vehicles. They are built, bought and held to generate rental income over their lifespan. If a building becomes unlettable, that purpose ends. For pension funds and institutional investors with large property portfolios, this directly threatens the value of the assets underpinning those funds.
The gap between EPC rating and actual performance
A point that rarely receives enough attention is the difference between modelled EPC performance and actual operational energy use. An EPC rating is based on a standardised assessment model and does not necessarily reflect how a building performs in use, which can differ significantly depending on how systems are operated, maintained and controlled. For owners developing an energy improvement strategy, validating the EPC model against actual operational data is an important early step. Without it, investment decisions risk being based on an incomplete picture of where the energy is actually going and what interventions will deliver the most meaningful results.
EPC compliance is not the same as decarbonisation
EPC compliance and decarbonisation are related but distinct objectives. Achieving EPC B addresses the modelled energy efficiency of a building’s fabric and fixed services. It does not, in isolation, constitute a robust decarbonisation strategy, which requires addressing actual operational carbon emissions, energy source and a range of factors that sit outside the EPC methodology. Understanding this distinction is essential.
The split incentive problem
One of the most significant barriers is structural. In leased buildings, the landlord bears the cost of improvements while the tenant benefits from lower bills. That split incentive has historically made the business case for retrofit difficult to justify internally, particularly for larger portfolio owners with complex governance processes. For developers, the same tension arises at acquisition or appraisal stage, where the cost of bringing a building to EPC B needs to be factored into feasibility from the outset rather than treated as a value engineering casualty later in the process.
But that mindset is shifting. There is growing evidence in the market that well-performing buildings are commanding stronger rents and shorter void periods, making energy improvement less a cost factor and more a competitive advantage for owners who are ahead of the curve.
Getting the strategy right from the start
For building owners approaching energy improvement for the first time, the temptation is to commission a report, receive a set of recommendations and assume the problem is being managed. In our experience, that approach rarely produces the expected outcomes. Too often those reports contain the right language without anything actionable behind them, leaving the owner with a document rather than a plan.
The financial stakes of getting this wrong are significant. A credible approach should start with asset screening and EPC model validation, cross-referencing rated performance against actual operational data, before assessing which interventions are technically feasible for the building’s construction, use, heritage status and lease structure. This means checking that the EPC remains valid and that underlying assumptions around geometry, fabric, servicing efficiencies, controls and other material factors are current and evidenced. An inaccurate or outdated EPC can distort both the perceived compliance risk and the measures selected.
From there, a phased programme can sequence operational quick wins, minor interventions and major overhauls, managing cost and disruption throughout.
For more complex buildings, the improvement programme should also be informed by recognised non-domestic retrofit standards such as PAS 2038. This provides a structured approach to assessing the building and identifying appropriate measures across fabric, building services, controls and operational performance.
The competence of the appointed advisers is equally important. Accreditation alone does not demonstrate the ability to deliver a complex retrofit strategy. Owners should look for relevant experience, strong building-physics and building-services knowledge, robust evidence management and clear quality assurance. This reduces the risk of improvements failing to deliver the expected compliance, energy or carbon outcomes.
The cost of waiting
When you factor in the typical timeline of an energy improvement project, from initial audit and assessment through design, procurement, contractor appointment and delivery, many larger or more complex projects take well over a year end to end. For anything involving significant system replacement or heritage constraints, owners of larger buildings in scope of the 2031 requirement who have not yet begun to assess their position are already working with a compressed timeline.
The buildings that will hold their value, attract quality occupiers and remain financeable over time are not necessarily those that achieve compliance on the day legislation requires it. They are the ones whose owners have taken a structured, evidence-based approach to understanding and improving energy performance across the regulatory, operational and market dimensions simultaneously. For developers and landlords still treating this as a question of when to act rather than how, that framing is already out of date.
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