Net Zero and Retrofitting
In 2024, it is anticipated that the Government will be taking significant steps to achieve the UK’s Net Zero target, particularly within the built environment. A recent report by the UK Green Building Council highlighted insufficient progress and stated that the built environment will need to decarbonise twice as fast in the next two years in order to achieve the UK’s target, calling for Government to intervene. A significant measure to do so is the Government’s shift towards retrofitting buildings.
The emphasis on retrofitting can be seen in the Secretary of State for Levelling Up, Housing and Communities, Michael Gove’s, rejection of Marks and Spencer’s application for the demolition and redevelopment of their flagship Oxford Street store. A main reason for the rejection was the concern that the substantial embodied carbon emissions from this construction would 'impede the UK’s transition to a zero-carbon economy.' It was also considered that M&S hadn’t appropriately explored the option for retaining and deep retrofitting the building as an alternative, and approving this project would discourage other developers from reusing existing resources.
This decision suggests that the level of embodied carbon emissions may become increasingly important in determining the success of planning applications. More information on the decision can be found in our quick read here. The Secretary of State’s decision is the subject of a judicial review challenge by Marks and Spencer, which is likely to be heard during 2024.
Flight to quality
The trend of flight to quality is expected to continue in the commercial real estate market throughout 2024, particularly in the office sector, where there is a demand for Class A properties that are both of high quality and environmentally sustainable.
This is driven by businesses wanting to incentivise their employees to return back to the office and also the increased focus on ESG considerations in businesses. To remain competitive in this landscape, landlords may find it necessary to invest in their properties, not only to comply with regulations but also to increase their appeal to potential tenants. Moreover, Landlords and Developers could also attain a third-party certification to validate their sustainability claims such as BREEAM or NABERS UK for UK offices.
Additionally, there is expected to be a continued increase in the incorporation of green lease provisions into leases and lease renewals. The Better Buildings Partnership is expected to publish an updated green lease toolkit in 2024. Negotiating green provisions within a lease can be attractive to both landlords and tenants, as entering into a green lease can support businesses in meeting their ESG targets and demonstrating a commitment to ESG.
Energy Act 2023
The Energy Act 2023 received Royal Assent on 26 October 2023. It is a huge piece of legislation and will need secondary legislation to expand its framework, some of which is anticipated in 2024. It is expected that the Government and Ofgem (who will have an expanded net zero role) will conduct a number of consultations on some of the detail behind the secondary legislation.
The Act contains a full regulatory framework for heat networks with Ofgem appointed as the regulator.
It also gives the Government powers to amend the regime concerning the energy performance of buildings in relation to assessment certification and publication of energy performance certificates for existing and new properties.
Extension of zero-rated VAT on installation of energy-saving materials
The Autumn Statement 2023 has promised to extend the zero-rated VAT on the installation of energy-saving materials to apply to additional technologies such as water-source heat pumps, from February 2024.
