Sustainability

January 2025 Forecast

Changing sustainability regulations

The incoming Labour Government will announce a raft of sustainability policies including regulations specifically affecting real estate. These regulations will focus on improving the energy efficiency of existing buildings as well as new developments.

Mid-year review

• The industry has had confirmation of the intention to raise the Minimum Energy Efficiency Standards (MEES) for private rented accommodation to C by 2030.
• Commercial MEES uplift is set to be announced later this year. We expect the minimum EPC to be set at B, with a deadline at least one year after 2030 but not later than 2035.
• The Future Homes Standard will lay out new building regulations for residential properties when published in the autumn. Mandatory solar panels have been confirmed as a requirement.

January 2025 Forecast

Sustainability disclosure

There will be confirmation of whether the ISSB’s International Financial Reporting Standards (IFRS) will be adopted as part of the UK's Sustainability Reporting Standards (SRS). Whether reporting will be mandatory and for who will be confirmed. Real estate occupiers and investors will both be affected by this decision.

Mid-year review

• The Government has confirmed that IFRS disclosures will form the basis of UK SRS. We expect a decision towards the end of the year on which entities will have to report on the following:
  • SRS S1 covering sustainability-related risks and opportunities for financial information. This goes beyond climate-related issues, also covering regulatory risk and governance risks related to executive oversight of sustainability decisions.
  • SRS S2 covering climate-related physical and transition risks and opportunities. This includes information like greenhouse gas emissions, exposure to physical risks like flooding or wildfires, and details of climate transition plans.
• The Government is consulting on requiring the development of climate transition plans.

January 2025 Forecast

Climate risks reflected in lending and valuations

Throughout 2025 transition and physical climate risks to real estate will increasingly be reflected in real estate lending, valuations, and transactions. Sustainability objectives will become increasingly important to securing debt. Physical risk exposure and insurance premiums could undermine some transactions. Valuations will continue to reflect the costs of regulatory compliance and adaptation to physical risks.

Mid-year review

• 71% of respondents to our 2025 European Lender Intentions Survey said they would not lend where assets either do not meet their sustainability criteria or lack a business plan to improve sustainability.
• Our Sustainability Index continues to show underperformance in valuations for assets deemed energy inefficient based on their EPC rating. We expect this underperformance could become more pronounced later in 2025 when changes to the commercial MEES are confirmed.
• CBRE valuers are aware of instances in 2025 where transactions have fallen through because of the difficulty in insuring assets against physical climate risks.

Office stock facing MEES challenge

60% of office stock, on average, is below expected future minimum EPC standard

In the second half of 2025 we expect the Government to announce its intention to raise MEES for commercial property in England and Wales to EPC B.

We expect the deadline for compliance to be set after 2030 but not later than 2035. Under this regulation, it would be illegal to lease a building that fails to comply by the deadline. However, we expect buildings where the cost of upgrade exceeds a certain threshold to be exempt.

Across the seven markets shown in figure 17, an average of 60% of office stock (by sq ft) currently has an EPC below B and risks becoming unlettable if no investment is made to improve efficiency.

Promisingly, an average of 28% of this stock has an EPC of C, just one band away from compliance. For these buildings, the cost of compliance is likely to be lower due to their proximity to the minimum standard. This almost compliant stock could present an opportunity for value creation through brown-to-green refurbishment.

If a MEES uplift is confirmed later this year, we expect the demand for building retrofit services to rise as there is a rush to comply before the deadline. This is likely to increase costs and reduce choice the closer we get to the compliance deadline.

Figure 17: Percentage of office stock (by sq ft, as of Q2 2025) below the expected future minimum EPC standard of B