1. Scale of compliance challenge:

• According to industry data provided by Savills, a significant proportion of UK logistics stock currently falls below EPC B (estimates suggest up to 85% may require upgrading) and only 21% of sub 100,000 square foot and 46% of above 100,000 square foot stock will be compliant by 2031.
• Older warehouses, especially those built before 2000, are most affected due to poor insulation, inefficient lighting, and outdated heating/cooling systems.

2. Cost implications:

• Retrofit costs vary widely but can range from £20 to £70+ per square metre, depending on building age, existing fabric, and required interventions (e.g., roof/wall insulation, LED lighting, solar PV, efficient HVAC).
• For a typical 10,000 sq m warehouse, this could mean capital expenditure of £200,000 to £700,000 or more.
• Some interventions may not be technically or economically feasible for certain buildings, especially those with structural limitations.

3. Operational disruption:

• Upgrades may require partial or full vacancy, disrupt logistics operations and potentially lead to void periods and loss of rental income.
• Supply chain schedules and tenant needs can complicate retrofit planning.

4. Funding and incentives:

• There is currently limited direct government grant funding for non-domestic EPC upgrades, though enhanced capital allowances and green finance products are emerging.
• Landlords may be able to recover some costs through service charges or rent reviews, but this is subject to lease terms and market conditions.

5. Market dynamics:

• Prime, modern logistics stock (built post-2010) is more likely to already meet or exceed EPC B.
• Demand for sustainable buildings is rising, with occupiers (especially major retailers and 3PLs) increasingly seeking green credentials for their supply chains.
• Non-compliant buildings may face “brown discounting”—lower rents, reduced asset values, and increased obsolescence risk.

6. Legal risks:

• From 2031, it is proposed to be unlawful to continue letting non-compliant Larger Properties (subject to exemptions). Non-compliance could lead to enforcement action and fines.

• For institutional landlords: Owners of large, modern portfolios may find upgrades financially viable, especially where costs can be amortised over long leases or recovered through increased rents.
• For smaller landlords/older stock: The financial burden may be prohibitive, particularly for secondary/tertiary assets in less prime locations. Some Larger Building assets may become “stranded” if upgrade costs exceed their market value.
• For tenants: Upgrades may lead to higher rents or service charges but can reduce operational costs (energy savings) and support ESG objectives.
• Investment decision: The viability often depends on location, asset quality, remaining lease length, and market demand for green logistics space. Properties that cannot be economically upgraded may become unlettable, reducing their value and marketability causing a significant concern for investors and asset managers, who must balance compliance with commercial viability.

While the 2031 EPC requirements are technically more achievable than they were for much of the UK logistics sector, financial viability is highly variable. For prime assets and portfolios, the business case is strengthened by market demand and risk mitigation. For older or marginal assets, significant capital investment may not be justifiable, leading to potential asset obsolescence and the sector may need to continue to lobby for clearer guidance and financial support to bridge the gap.

In summary, achieving compliance with tightening EPC requirements in the sector requires substantial investment, collaboration between stakeholders, and a strategic approach to property management. Without coordinated action, the sector risks regulatory penalties, asset obsolescence, and missed opportunities in the transition to a low-carbon economy.

Preparation for EPC 2031 for those in the logistics sector should take a proactive, strategic approach and will require a blend of technical, legal, financial, and operational actions. Early engagement, strategic planning, and legal review are critical to mitigate compliance risk and maximise asset value.

Here are key steps, supported by relevant legal and practical considerations:

1. Audit and assess current portfolio - Conduct a comprehensive EPC audit across all assets to establish baseline ratings for Larger Properties and identify those at risk of non-compliance and review lease terms to determine landlord/tenant responsibilities for energy efficiency works.

2. Strategic planning and budgeting - Develop a phased plan for upgrades, prioritising assets with the lowest EPC ratings and highest business value and set budgets for retrofit works, considering capital expenditure, operational disruption, and potential funding sources.

3. Technical upgrades - Typical interventions include improving insulation (walls, roof, doors), upgrading lighting to LED, installing efficient heating, ventilation, and air conditioning (HVAC) systems, incorporating renewable energy solutions (solar PV, battery storage) and enhancing building controls and automation.

4. Lease and contract review - Review lease agreements to clarify who bears responsibility for upgrades and how costs can be recovered and consider negotiating “green lease” clauses that incentivise energy efficiency and clarify obligations.

5. Stakeholder engagement - Communicate plans with tenants, investors, and lenders—especially as ESG requirements are increasingly important in procurement and investment decisions and collaborate with occupiers to minimise disruption and maximise operational benefits.

6. Seek exemptions and legal advice - In some cases, buildings may not be capable of cost-effective improvement to EPC B. Apply for exemptions where eligible, such as “all improvements made” or “devaluation” exemptions under the Energy Efficiency (Private Rented Property) (England and Wales) Regulations 2015 and obtain legal advice on compliance, risk, and exemption applications.

7. Monitor regulatory developments - The government’s proposals are not yet final and may be subject to change. Stay updated via official sources and industry bodies.

8. Consider asset strategy - For assets where upgrade is not viable, consider repurposing, selling, or redeveloping to avoid “stranded asset” risk.

9. Explore funding and incentives - Investigate government grants, green loans, and enhanced capital allowances for energy efficiency works and consider partnerships with occupiers or utility companies to co-fund improvements.

10. Embed energy performance in investment decisions - Integrate EPC compliance and energy efficiency into acquisition, disposal, and development strategies to future-proof portfolios.