Why energy efficiency has become an economic case, not just a climate one
Some 89% of UK property investors are increasing the amount they allocate to sustainability features across their portfolios, according to Handelsbanken's fifth annual Property Investor Report, which surveyed 200 UK real estate investors, property managers and landlords.
But the same research found the share of landlords who believe tenants will pay more for greener buildings has fallen sharply, from 92% to 68% – a gap Richard Winder (pictured top), head of sustainability at Handelsbanken, told Mortgage Introducer reflects two competing forces rather than waning enthusiasm.
"If you look at the first figure on its own, it is a very high proportion of landlords seeing the writing on the wall," Winder said. "Many will see opportunity in the spending they are making. Others will be thinking more about protecting asset value and long-term asset maintenance."
Why has tenants' willingness to pay a green premium fallen?
On the drop in tenants' perceived ability to pay more, Winder pointed to affordability pressures rather than declining interest in sustainability. "I think that is probably a reflection of the cost of living and the various challenges business tenants have, alongside very tight market conditions," he said. "Residential tenants are facing a similarly difficult market."
Even so, he argued professional landlords are not simply reacting to the present. "You are thinking about where things are going – the trends in rental yields, valuations and how to make sure your portfolio sits in the right quadrant."
That professionalising instinct is playing out elsewhere in the sector too, with the mean compliance cost for professional landlords now running into five figures under separate Handelsbanken research into the Renters' Rights Act.
From climate ideology to practical economics
The report found tenants favour visible, practical upgrades – Energy Performance Certificate (EPC) ratings of C or above (66%), EV charging (50%), smart home technology (47%) and solar panels (43%) – over broad green labelling. Winder said this marks a shift from the language that dominated the sector five years ago.
"If you go back five years or so, around COP26 in Glasgow, everyone was talking more in terms of climate change itself," he said. "Since then, partly because of the direction of travel from corporates and governments, people have started to look at the economics." He added that falling technology costs have reinforced the case for electrifying "everything you reasonably can".
On EPC C specifically, cited by 66% of tenants as their most requested feature, Winder said it now functions as a proxy for quality as much as genuine understanding of energy performance. "EPC C is the understood standard for the time being, and that gives them comfort," he said, adding that corporate tenants are increasingly looking further ahead to EPC B.
Is delaying retrofit work a false economy?
The report warns postponing retrofits could prove costly, and Winder set out the financial logic. "The premium is already there in the marketplace," he said. "If you put off activity until you really have to do it, you also have to consider supply and demand when it comes to the people and materials needed to do the work. Human nature means a lot of people leave things until the last minute, and that is likely to drive prices up."
The point carries added weight given the government's Warm Homes Plan, published in January, which set out the minimum energy efficiency standard for landlords, confirming private rented homes in England and Wales must reach the equivalent of an EPC C by October 2030, backed by a cost cap of up to £10,000 per property.
Why is green demand strong outside London?
The regional data surprised even Winder at first glance. Investors with properties in Wales (79%), Scotland (78%) and the West Midlands (76%) were among the most likely to say renters would pay more for greener homes, while demand for stronger EPC ratings was most pronounced in the North East (80%) and South West (79%). It echoes a wider pattern of buy-to-let activity concentrating in northern England as landlord portfolios professionalise.
"It is really interesting," Winder said. "On the one hand, it still does surprise me, and yet I question why, because we get out around the country. Handelsbanken has branches all across Great Britain, and we hold seminars that are packed with landlords and property investors who want to talk about these issues."
He said those rooms reveal a genuine spread of motivations rather than a single driver. "There is a range of views in the room, but there is no doubt that people are exercised by the changes taking place and what they mean for their businesses," he said. "Then there is another layer of people who go beyond that and are committed from a responsibility and climate perspective as well."
That mix, he said, explains why the regional strength shouldn't come as a shock once the data lands. "It should not surprise me when I see parts of the country showing particular interest around EPC levels, or places such as Wales showing broader interest," he said. "But I suppose the mind is always trying to catch up with the reality on the ground."
When does sustainability stop being a differentiator?
Asked at what point green credentials shift from competitive edge to baseline expectation, Winder acknowledged pockets of resistance remain. "But if you project forward, I don’t think it will be many years before most of that resistance has gone," he said. "I think everyone will be on that train of recognising where things are going."
Lenders, he added, have moved faster than some expected. "If you look at the marketplace, and the Green Finance Institute's research on the green mortgage market, there is a very healthy market for products. I think banks have been fairly early to understand the change that is under way."
Asked what stood out most from the findings, Winder returned to the regional picture. "I am glad you picked up the regional angle," he said. "That is great from our point of view, and it is something that really stands out from the research. We are now seeing these very strong regional pockets building up, and that is becoming a national picture by default."
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