Demand for sustainable rental properties soars

“Locking in value, reducing operating costs, and attracting and retaining tenants are all front of mind for investors – research suggests that assets with the highest EPC ratings enjoy considerably longer lease lengths”
– Richard Winder – Handelsbanken

Data from Handelsbanken’s latest annual Property Investor Report, based on insights from UK property investors with an average of 35 properties each, reveals that 92% of investors report tenants asking for sustainable features such as heat pumps, solar generation or EV chargers – with 28% requesting the latter.

Furthermore, 58% of tenants have requested properties have an Energy Performance Certificate rating of C, with this rising to 88% of tenants in London amid high energy costs.

Lisa Robey, Milton Keynes Branch Manager at Handelsbanken explains: “Our customers are seeing tremendous demand from tenants for sustainable properties that can help reduce both their environmental footprint and their utility bills.

“It’s important to note that landlords who invest in green features are not only meeting this demand but also future-proofing their assets.”

Current government regulations in England require all residential and commercial rental properties to have an EPC rating of E or above before being let to tenants, with previous plans to raise the minimum EPC rating to C for existing residential rentals by 2028 scrapped in September of last year.

While a quarter of respondents have cut the amount they planned to invest following this announcement, 44% are continuing with their original investment plans.

With tenant appetite for sustainable properties at an all-time high, it comes as little surprise that the average value of annual budgets earmarked for sustainable investments across commercial and residential portfolios has risen from the £106,222 reported in Handelsbanken’s 2023 report to £128,000 this year – an increase of over 20%.

The findings also show that landlords are embracing the drive for sustainable assets beyond their purse strings, and would welcome changes from the government at a legislative level: a staggering (72%) of respondents would welcome new rules raising the minimum Energy Performance Certificate rating to A for commercial and residential lettings – the highest level achievable.

Richard Winder, UK Head of Sustainability at Handelsbanken said: “Property investors are clearly recognising the long-term value of maximising energy efficiency across their portfolios, and are eager to meet the highest sustainability standards to capitalise on the commercial benefits.

“Locking in value, reducing operating costs, and attracting and retaining tenants are all front of mind for investors – research suggests that assets with the highest EPC ratings enjoy considerably longer lease lengths.”

The bank says it is also seeing an increased appetite from investors on either developing or acquiring properties with better EPC ratings based on the green financing initiatives offered by banks discounting loan margins.