While the UK real estate sector is still in the relatively early stages of its multi-decade journey towards net-zero, progress on decarbonising existing stock, as well as the prospects for success, vary dramatically across different parts of the market.
In the commercial sector, occupiers are increasingly focused on offices or warehouses’ green credentials, and investors recognise the premium attached to more energy-efficient buildings. That means a lot of capital is waiting in the wings to finance refurbishments and upgrades.
In the residential space, the challenge is greater because ownership is much more fragmented across millions of people, while the ‘green premium’ doesn’t exist to the same extent, so there’s less in the way of financial incentive – as we’ve discussed before. But the challenge is well understood and, importantly, the government has set explicit targets for decarbonising homes.
When we turn to public buildings, the gap widens further. These are among the least efficient, but unlike the residential sector, there is less clarity on the long-term government decarbonisation ambitions.
Efficiency targets
The government’s proposed reforms to Energy Performance Certificates (EPCs), announced late last year, mean domestic properties in England and Wales will be required to have a mandatory minimum C rating by 2030, up from the current rating of E. This target does not include affordable or social housing; it only includes privately rented properties.
Although public sector buildings sometimes require an EPC, many are rated using Display Energy Certificates (DECs), if the publicly used building exceeds 250 square meters. Currently, there is no minimum rating for DECs, and no target has been set for 2030.
Standards are tightening, and the pressure on asset owners to make energy-efficient upgrades is rising. But where do public buildings fit into this?
Why public buildings matter
An alarming lack of government focus on decarbonising public sector buildings highlights a problem we’ve long known about – the biggest challenge in the UK’s built environment isn’t just future construction, it’s what already exists.
While residential and commercial buildings make up a significant portion, public buildings also comprise a considerable share. Schools, libraries, leisure centres, care homes – the buildings citizens use every day, and more often than not, these are at the lower end of the energy performance scale.
A staggering 91% of public buildings in England and Wales will require upgrades to meet the 2030 residential EPC standard if it were to be enforced on these assets.
Whether a building is public or private, it still accounts for part of the 40% of carbon emissions produced by the built environment each year.
And yet, despite being some of the worst offenders, public assets rarely benefit from retrofit-specific government initiatives.
The challenges of upgrading
Existing public sector buildings cannot meet higher standards without significant investment in retrofitting and energy efficiency upgrades.
Earlier this year, the government announced the planned end of the Public Sector Decarbonisation Scheme (PSDS), the flagship programme providing grants to public sector bodies in England to help make necessary upgrades. Although the scheme will run its final phases until 2028, beyond that, plans are yet to be seen.
In its early phases, the PSDS provided more than £2.5 billion towards retrofitting changes, such as heat pumps, insulation, double glazing, and solar panels, for public buildings.
Around the same time, the government quietly abandoned the Public Sector Low Carbon Skills Fund (LCSF), a similar grant programme.
Since Labour has been in power, it has committed to various funding streams for decarbonising public buildings through Great British Energy; however, the closure of targeted schemes is concerning, and the details on new routes are light.
Government funding alone won’t solve the retrofit gap – particularly in an economic environment defined by uncertainty, rising construction costs, and stretched public budgets.
It seems inevitable that some mechanism for crowding in private capital to help finance these retrofits will be necessary, while avoiding a full retread of the private finance initiatives (PFI) that have been largely discredited in the UK.
Creative thinking
The good news is that there is huge potential to rethink how these spaces function. Part of the solution lies in governments thinking more creatively about how public buildings can be upgraded.
These assets are, in many ways, ideally suited to innovative sustainability interventions: they’re long-term holdings, heavily used by local communities, and often large enough to accommodate technologies that may not be viable in smaller residential settings.
We’re already seeing some innovative examples. Last year, tech startup Deep Green piloted using energy from data centre processing to heat public swimming pools in Devon. Now backed by a £200m investment from Octopus Energy, up to 150 pools in the UK could be offered this pioneering approach to energy saving.
While methods like this are bold, public buildings are the perfect assets to test this kind of creative, high-impact upgrades.
To be clear, the challenges facing commercial, residential, and public buildings are diverse and sometimes incomparable. Still, the underlying principle remains the same: all three make up the UK’s built environment, which needs to be decarbonised if we are to meet the UK’s ambitious plans to achieve net zero by 2050. As we explore expanding our focus as a business, areas of real estate beyond residential that are most open to creativity in terms of sustainability will certainly be on our radar.
