In any discussion I have had about environmental standards people have been quick to express strong opinions, and the respondents to our “Outside the Box” survey were kind enough to oblige!

A key driver for decarbonisation in the sector has been the Minimum Energy Efficiency Standards (MEES). Since first coming onto the scene MEES has forever seemed ‘just around the corner’, but the day has come when they are starting to show they have "deal world" impact. While there is still uncertainty as to where we are going, what was previously just a new “tick box” in reporting is now something that clients are bringing front and centre, with the EPC rating becoming a very material part of commercial discussions.

We are seeing sellers try to smooth the way by including detailed assessments of capex for necessary / desirable energy efficiency improvements in the sale data room, there are discussions about the risk rising standards pose to landlord’s dilaps claims, and a push by landlords to pass risk of bringing premises up to future, higher, standards onto tenants. On that last point, as buyers are pricing future expenditure in one interesting suggestion is whether in a sale and leaseback a “tenant” might be persuaded to accept the risk of this obligation in exchange for a larger initial cash injection. While we have seen buyers push for some commitment to improvements in recent sale and leasebacks, this is not something that has gained any traction. I will watch this space with interest.

It is one thing to start afresh and create “best in class” new units with fantastic future-proofing, but the real test for the sector will be in how it deals with the challenge of becoming carbon neutral, especially if the recent noise around Marks & Spencer pushes people towards retro-fit rather than rebuild. But, as Phil Irons of Patrizia said in our report, if the rents are not there landlords are going to have a very difficult decision to make.