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Tenant demand for sustainable properties soars

Annual investment in sustainability has risen by 20% year-on-year as nearly 100% of property investors report increased tenant requests for eco-friendly features.

According to Handelsbanken’s latest annual Property Investor Report, which gathers insights from UK property investors with an average of 35 properties each, almost all surveyed investors have noted a significant increase in tenant demand for sustainable features over the past 12 months. A staggering 92% of investors reported requests for sustainable enhancements such as heat pumps, solar panels, and EV chargers, with over a quarter specifically asking for EV chargers.

Increasing demand for higher EPC ratings
Furthermore, three in five tenants (58%) have expressed a desire for properties with an Energy Performance Certificate (EPC) rating of C, a figure that jumps to 88% among London tenants, where energy costs are particularly high. Lisa Robey, Milton Keynes Branch Manager at Handelsbanken, commented: “Our customers are seeing tremendous demand from tenants for sustainable properties that can help reduce both their environmental footprint and their utility bills. It’s important to note that landlords who invest in green features are not only meeting this demand but also future-proofing their assets.”

Impact of government regulations on investment
Current government regulations in England require all rental properties to have an EPC rating of E or above before being let to tenants. Despite the scrapping of plans to raise the minimum EPC rating to C for existing residential rentals by 2028, a quarter of respondents have reduced their investment plans, while 44% are continuing with their original plans.

Increase in sustainable investment budgets
Tenant demand for sustainable properties has driven up the average value of annual budgets earmarked for sustainable investments in commercial and residential portfolios. This figure has increased from £106,222 in Handelsbanken’s 2023 report to £128,000 this year, marking a rise of over 20%.

Investor support for higher sustainability standards
The report also reveals that landlords are not just investing more but are also in favour of stricter sustainability regulations. A notable 72% of respondents would support new rules raising the minimum EPC rating to A for commercial and residential lettings. Richard Winder, UK Head of Sustainability at Handelsbanken, stated: “Property investors are clearly recognising the long-term value of maximising energy efficiency across their portfolios and are eager to meet the highest sustainability standards to capitalise on the commercial benefits. Locking in value, reducing operating costs, and attracting and retaining tenants are all front of mind for investors. Research suggests that assets with the highest EPC ratings enjoy considerably longer lease lengths.”

Increased investor interest in green properties
Handelsbanken has also observed a growing appetite among investors to develop or acquire properties with better EPC ratings, driven by green financing initiatives offered by banks that discount loan margins for energy-efficient properties.

The future of sustainable property investment
With tenant demand for sustainable features at an all-time high, property investors are increasingly recognising the benefits of eco-friendly investments. This trend not only meets the rising tenant expectations but also secures long-term value for landlords. As government regulations evolve and green financing options expand, the push towards higher sustainability standards in the property market is set to continue, offering significant opportunities for forward-thinking investors.