UK and European offices with poor environmental performance are being actively targeted by private and institutional investors looking to create value through sustainability upgrades, according to the latest research from Knight Frank.

Knight Frank’s ESG Property Investor Survey, which surveyed 45 private and institutional real estate investors active in the UK and Europe with a total AUM of nearly £300bn, found that 58% of investors are actively seeking to acquire commercial buildings that perform poorly on ESG metrics, in order to improve and upgrade them to meet future environmental standards.

In London just over half, 52%, of the total volume of investment in offices in the first half of 2023 was for Value-add acquisitions, some £2bn. The share of Value-add transactions has been rising since the end of the pandemic despite the higher costs of development. In the first half of 2023, £2.5bn of assets (13.4% of total real estate investment volumes) were purchased in the UK for the purpose of renovation or redevelopment. For the offices sector, the figure was 24% or £1.2bn.

Minimum Energy Efficiency Standards (MEES) for non-residential buildings required a minimum Energy Performance Certificate (EPC) rating of E to be lettable from 1 April 2023, with the Government planning to increase this to a minimum of C by 2027 and B by 2030. The office sector is the most exposed within real estate, with 79% of floor space in the UK currently below EPC B.