Energy transition in the limelight: balancing evolution with long-term lease requirements
Over recent years, the energy landscape has undergone a significant shift, steering away from traditional fossil fuel-derived sources and towards renewables – all against a turbulent global situation that has impacted energy supplies. This change presents a challenge for property owners and tenants regarding their leases – particularly for those in sectors where technology reliance is growing or rapidly changing.
Navigating energy consumption considerations
Anticipating future trends and their onward impact on the property market is necessary to ensure deals stack up. However, many organisations cannot predict what their operations, and therefore, their energy requirements, will look like in the coming years. Even if they can estimate their requirements at the start of a lease, these may drastically change in the middle or end of the agreement.
This presents a dilemma of how to secure property leases that seamlessly align with operations, a concern when many leases are typically agreed upon for decades at a time.
There is also an element of uncertainty around what legislation the Government may introduce. It might, for example, announce that in the future businesses must only use EV lorries – but, as this is an unknown, it makes negotiating a lease or purchase challenging: how can they know if they’ll require enough energy to charge an entire fleet of vehicles?
Complexities such as these alter how property is sold, with a building’s energy efficiency and energy capacity potential positioned as a selling point. This is also reshaping how sites are brought to market, with potential buyers and tenants desiring information ahead of time they can use to make better-informed assessments against their business predictions. They need assurance that any potential site has enough future capacity so that they are not locked into leasing a building that could eventually become unfit for purpose. Ultimately, the nature of each business and its operational requirements will determine a building’s suitability.
The ESG agenda
The global rise in energy costs, exacerbated by geopolitical tensions of recent years, has intensified scrutiny on the environmental, social, and governance (ESG) agenda. Businesses are recognising the profound impact of their operations on the environment – and consumers and staff increasingly want to work for, and with, ecologically responsible organisations.
Indeed, the ESG agenda is proving critical across the property market as it continues to drive demand for purchases. Financial institutions and banks are also recalibrating to the changing energy landscape and the role they can play in the Net Zero Government Initiative.
For example, much better borrowing terms are available for energy-efficient buildings, not only providing incentives to building owners but also aligning with the need for banks to improve their energy performance ratings across their debt books. This shift aligns with the financial sector’s imperative to minimise risk exposure and underscores the growing recognition of the economic benefits tied to sustainability.
Politics can potentially influence what happens with banks and what they need to do – something to be aware of with an upcoming general election. However, even as political landscapes and markets change, the broader trend towards corporate responsibility and the ESG agenda remains steadfast, which property stakeholders must consider, both from a financial and reputational perspective.
In the modern day, information is power and can be the maker or breaker of a decision or deal. The tools are there – such as our own at Nimbus – to help clients navigate the complexities, land the best property opportunities and forge success.
Paul Davis is the co-founder of proptech intelligence company Nimbus
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