How to increase the value of your commercial property - Ben Harrison of Mypower Ltd
The UK commercial property market is rapidly changing and facing highly uncertain times in the face of Brexit and now the coronavirus.
Ben Harrison, a chartered surveyor and managing director at Mypower, looks at how both landlords and owner occupiers can increase the value of their commercial property through adding sustainable features.
Increasing the value of your commercial property goes hand in hand with reducing its operating costs. A well maintained, well insulated energy efficient building offers an attractive proposition to both tenants and purchasers. Adding LED lighting, energy efficient appliances and renewable energy systems such as heat pumps and solar panels make commercial sense for both immediate and long-term value.
My recommendation to any commercial property owner is to look at what potential your building currently has, to enhance the asset and increase its value. Your roof for example, is an obvious necessity, but it is a dead space that offers enormous potential for low cost electricity generation.
A roof top solar PV system generates a building's own clean electricity at around one third of the cost of traditional grid supplied electricity. As mentioned above; reducing property operating costs will in turn, increase the value of the property. In my experience, these benefits apply to owner occupiers, landlords and tenants.
Fixing costs long-term
For owner occupiers running a business from the property, solar PV effectively offers them a 15 per cent + ROI by producing their own clean electricity at around 5p/unit fixed price (including capital and O&M costs), versus 15p/unit variable price from the grid. Even if the Solar PV is fully financed this only adds around a penny per unit to around 6p.
This price for solar generated electricity is fixed for at least 25 years due to the long-term warranties and low maintenance costs of the equipment. This enables the occupier to effectively hedge a significant chunk of their electricity requirements for at least this period.
Over the past six years, we have seen commercial grid electricity prices increase by around 50 per cent. Imagine a business paying their supplier £50,000 per annum for electricity (many do, and many pay much more). A 50 per cent increase takes £25,000 straight off the bottom-line profit, for exactly the same product. Reversing this increase through Solar panels on the building, can only add value to the property. In most cases, without the building's roof, these savings cannot be made.
Depending on the size of the installation, the average SME can also avoid 50-100 tonnes of CO2 every year. A building which is producing its own cheap, green, electricity is attractive to potential buyers, adding value from reduced operating costs.
Options for landlords
For Landlords, increasing a property's worth is two-fold as they will look to increase the rental income and enhance its capital value. Simple ways to increase value are to create attractive spaces. Improving amenities like adding a small gym, a staff room or outside seating areas are all relative low cost but add value to a tenant. What a tenant is prepared to pay for the building determines its value. If a landlord can reduce a tenant's operational costs, then the property suddenly becomes very appealing to the tenant.
A sustainable, well maintained building is key. With energy costs being an increasing overhead for companies, offering cost savings through the installation of energy efficiency measures offers benefits to both the landlord and tenant. For the landlord a solar PV installation offers an ROI in excess of 13 per cent, turning dead roof space from a potential liability into an asset. Solar PV provides electricity into the building at 65 per cent cheaper than the grid.
Forward thinking landlords are choosing to install solar and sell the electricity that the panels generate to the tenant at a discounted rate compared to grid price. It's a win:win for landlord and tenant. The landlord achieves a strong ROI with little management required as well as achieving a more lettable building. The tenant benefits from the carbon savings as the tenant's business can use the CO2 savings to promote their own sustainability. The tenant can also benefit from reduced electricity costs.
What about MEES?
The Minimum Energy Efficiency Standards, known as MEES, came into force on 1st April 2018 meaning building owners may not let or renew a lease on their property if the EPC is F or G rated. From 1st April 2023, owners must not continue letting a commercial property which is already let if that property has an EPC rating of band F or G. The addition of solar PV to a building significantly improves its EPC rating, although we would always advocate reducing energy consumption before or at the same time as energy generation.
Increasing the value of your property
It is not all just theory; commercial property surveyors do advise that buildings which produce their own green energy are increasingly attractive to owner occupiers and tenants alike. My advice to commercial property owners, particularly at this time, is to add value to your building. If you can add value and reduce your impact on the world's climate crisis then it is a very satisfying way to enhance an asset.
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