How will green offices be achieved?

The recent COP27 event highlighted the fact that we have not made as much progress on our pathway to net zero as we would have liked, and the hope of keeping 1.5°C alive is dwindling.

According to the World Green Building Council, buildings account for 39% of global energy-related carbon emissions, and approximately three-quarters of that comes from running them; the remainder is from the construction process. Therefore, the built space can greatly impact global environmental performance.

A recent Financial Times article highlighted the Great Green Office Crunch and the issues that the sector currently faces when upgrading and decarbonising buildings such as offices. We have summarised some of the key points raised in the article so that we can explain where amBX fit and the opportunities and challenges we face as a result of the current landscape.

According to estate agency Savills, three-quarters of the UK office market falls below minimum energy efficiency standards, which are set to be in place by 2030.

Researchers at Columbia and New York University estimate $500bn in office value could be destroyed by 2029 as demand falls and green standards kick in. Savills estimates the cost of upgrading a building from today’s standards to 2030 requirements to be roughly £40 per sq ft, on top of normal refurbishment costs. Hence, there will be lots of standard assets as some landlords will be able to afford this, and in premium areas, they will be able to recoup some of the cost, but many will not.

Four in five buildings standing today are expected to still be in place by 2050, and the pressing challenge is how to breathe new life into them before then.

In the UK, buildings receive an energy performance certificate, or EPC, with a top grade of A and a bottom of G. Ministers intend to ratchet up minimum energy efficiency standards (MEES), making it illegal to let out offices with an F or G rating from April 2023. Estate agents estimate that will leave 5-10% of UK offices high and dry.

The minimum standard is set to rise to a C rating by 2027 and to a B by 2030, a level which around 70% of offices in London fall short of, according to Savills.

Demand from corporate tenants and wealthy investors for the best space is incentivising developers to go further. There is a constellation of private accreditations, each claiming to prove a building is green. Tenants who have drawn up their own carbon reduction plans are increasingly shunning older blocks and zeroing in on offices wearing those badges of honour.

Buildings with the highest levels of green accreditation make up less than 10% of the London market but account for around 60% of all space leased in London this year, according to Savills.

Tougher regulations will “cut emissions, tackle energy poverty, reduce people’s vulnerability to energy prices and support the economic recovery and job creation”, according to the European Commission.

Landsec, a listed UK landlord, estimates work to get its £11bn portfolio to the EPC B grade required by 2030 will come at a net cost of just £135mn, a shade over 1% of the value of their buildings.

But privately owned peers such as the Crown Estate have suggested costs could run to £1bn, roughly 13% of the value of its total real estate portfolio.

Shiny new offices, owned by institutional investors and filled with big corporate tenants, will be fine, “The problem is that’s only a small part of the real estate out there.” Peter Cosmetatos, Chief Executive of the Commercial Real Estate Finance Council Europe.

A year ago, 70% of London office developers told Deloitte they expected all their new developments to be net zero by 2030. When the same survey was repeated recently, just 36% were confident in that timeframe.

Office owners have so far had an easier ride, but as a result of the pandemic and interest rate rises, values have fallen sharply since 2019, with office values up just 5% over the past 15 years, according to the commercial real estate analytics firm. Recent falls are widely expected to accelerate as the market adjusts to higher interest rates and the cost of hitting net zero.

Like shopping centre landlords, they are dealing with a tectonic shift for their tenants: as a result of homeworking, occupancy levels in England remain stubbornly close to 30%, which is half pre-pandemic norms.

Environmental upgrades are increasingly urgent but also increasingly expensive as borrowing costs soar and inflation drives building material prices ever higher.

So, where does amBX’s solution fit in this complicated landscape?

In general, there is a lack of action, possibly because targets/deadlines still feel quite a way off and because the cost of an upgrade is something many cannot afford.

At amBX, we position ourselves as part of the solution, but we rely on system integrators using us, smart building platforms (or BMS) embedding us in their platforms or other stakeholders such as building consultants specifying us.

We know that some building platforms are trying to give away free software licences for building upgrades to gain proof of concept case studies and present what is possible to the market. But the truth of the matter is; a huge education push is needed to help building owners understand what solutions should be installed; this will allow them to hit environmental targets and stop wastage. Currently, the pathway to achieving a net zero building is viewed as complicated, confusing and costly. To succeed, we need to make the process a lot more straightforward.

The rise of SaaS models in the industry has helped to spread the cost of an upgrade, and future-proof landlord’s assets as the software is continuously updated and developed to stay at the leading edge.

amBX’s software platform, SmartCore, helps to bridge the gap between lighting and other building systems, converging data and allowing insights to be gained and more efficient lighting/building system strategies to be implemented as a result of the data collected.

amBX has a much more cost-effective solution than other traditional integration solutions, saving as much as 48% of the cost of lighting integration projects.

However, we are a small part of the overall solution. End customers, such as owners of large portfolios, want to go to one person, e.g., an MSI or smart building platform and get them to do everything for them. Therefore, amBX’s strategy is to partner with these players and bolt onto their solutions, making integration easier for them, less costly, quicker and adding a whole host of lighting logic benefits. In addition, the end customer is often never aware that amBX is ever involved – it is just another part of the intelligence inside a wider solution.

Why are we sharing this?

Well, we believe this is the way forward for the industry and a way of simplifying a very complicated process. If big players have an ecosystem of partners embedded, each with their own strengths and responsibilities, they can deliver a solution more efficiently, have more support, can provide the client with extra value and, most importantly, accelerate the decarbonisation of the built space.