In our penultimate article on Manchester’s intention to become a zero carbon city by 2038, we consider this week the built environment, the measures available to help contribute to objectives, and the implications for those involved in the management and/ or transaction of real estate.

Manchester’s Climate Change Framework estimates that housing, and the built environment generally, may contribute up to 30% of the city’s total carbon emissions. Real estate is therefore considered to be a key driver in efforts to achieve carbon neutrality, with buildings being categorised as ‘net zero’ if they have no net carbon emissions during either their construction or operation.

However, the obstacles to overcome to achieve this objective are two-fold: not only is it necessary to remedy defects or environmentally prejudicial characteristics within existing stock, which includes those premises constructed before there was the current awareness of climate change; but in addition, net zero requires that those buildings yet to be designed or constructed also contribute to the target to be achieved.

What has Manchester done to date?

Despite the enormity of the task at hand, numerous retrofitting measures are commonly available, for example: installation and upgrade to energy-efficient lighting; high efficiency boilers; installation of double-glazing; and cavity wall insulation.

Although these measures may not be considered individually onerous or overly time-consuming, wholesale retrofitting of existing stock is not without cost. To meet its net zero aims, Manchester estimates that around 84,000 properties will require retrofitting, at an anticipated cost of between £25,000 to £30,000 per property. With only limited funding available for retrofitting, the question remains: where is the money going to come from?

In addition, current plans to retrofit real estate portfolios do not operate in a vacuum and take place against the continued introduction and implementation of the Building Safety Act. That Act, supported by secondary legislation, prescribes and mandates new regulatory obligations in respect of building safety and fire management provision. Building safety is paramount, but those involved in the design of new builds will need to consider how best to balance the achievement of net zero and carbon neutrality whilst also ensuring the total safety of a building throughout its lifetime.

What about future builds?

A significant proportion of the real estate infrastructure which is expected to exist in 2038, being Manchester’s deadline to achieve net zero status, is yet to be designed and constructed. Therefore, there also needs to be consideration as to how these future builds will help towards reaching that goal. This requires consideration not only of how those buildings will operate once in occupation, but also how embodied carbon (being the carbon contained within construction and civils materials) will be either managed or off-set. This will require a full review of all aspects of a supply chain to ensure that materials are genuinely carbon neutral in their production.

We have already touched upon some of the measures which can be introduced to an in-occupation building to help limit climate change, but in addition to domestic measures, designers may wish to consider the introduction of on-site renewable heat and electricity generation, such as photovoltaic sensors, as well as district heat networks.

The UK Green Building Council’s framework definition of net zero carbon buildings recommends that onsite renewable energy sources should be prioritised and should be pursued by building developers, owners and occupiers, where feasible. Not only is it anticipated that the presence of such measures may increase a building’s value, but it will also concurrently reduce pressure on the national grid.

What are the practical implications?

Implicit in all of the foregoing is that a building’s Energy Performance Certificate (‘EPC’) is going to become an increasingly important document over the coming years. Whilst they are already central to many transactions, we anticipate that their contents will be subject to additional review and transactional discussions. For example, going forwards, it is likely that EPCs will need to be carefully scrutinised during transactions, with the buyer working to achieve full understanding as to when the EPC will expire, whether any measures can be taken to improve the rating and if they have been appropriately registered.

In parallel, we anticipate that corporate due diligence, to the extent it involves real estate transfers, will also become more protracted. For example, there will need to be careful consideration as to whether retrofitting is necessary, who is to be responsible for this and whether any such revisions are permitted within the lease in place. In addition, where on-site energy generation is available, owners and occupiers will need to be mindful of the ownership of the generating plant, as well as apportionment of the additional regulatory burdens which accompany the generation of energy.

In respect of this specific example, where building designers and/ or owners wish to benefit from the cost-savings associated with on-site heat and electricity generation, they also need to consider whether such use is permitted in terms of relevant planning authorities, as well as the possible health and safety considerations which may arise from its operation.

Conclusion

Whilst the move towards net zero is a laudable aim, the consequences for real estate are significant: the scale, extent and cost of retrofitting existing properties is sizeable, but in addition there are also numerous opportunities for the sector to take the driving hand in bringing about real change.

Our final commentary piece next week will bring together recent articles, together with our predictions going forwards for what net zero will mean for both Manchester and the country as a whole.