According to Savills, the European Green Deal is driving a demand for commercial properties to achieve at least a B energy rating. The Energy Performance of Buildings Directive (EPBD) mandates minimum energy performance standards for commercial properties. The Energy Efficiency Directive sets targets for the public sector, one of the largest tenants, to lead by example. Additionally, the Corporate Sustainability Reporting Directive requires commercial entities to report on ESG (Environmental, Social, and Governance) factors.

The current state of Ireland's office stock in terms of energy efficiency is a significant concern for the real estate sector. Remarkably, only 2% of office buildings across the country hold an A rating for energy efficiency, highlighting the urgent need for renovations and upgrades to meet modern energy standards.

Furthermore, a staggering 59% of the office stock is rated D or lower, underscoring a widespread issue with energy inefficiency in Irish office buildings.

According to Orla Coyle, Head of ESG at Savills Ireland, this situation not only impacts the environmental footprint of the commercial real estate sector but also affects the operational costs for businesses and the attractiveness of these spaces for potential occupants.

“As awareness and demand for sustainable and energy-efficient workspaces grow, the need for significant upgrades to Ireland's office stock becomes evident. However, upgrading buildings to meet new energy standards is not a one-size-fits-all process. Each project is unique, and costs will vary depending on the building's condition. Despite this variability, the opportunity for investment in energy efficiency improvements is substantial. Such investments can lead to long-term savings, compliance with future regulations, and enhanced marketability of these properties.”

The current breakdown of Ireland's office stock by Building Energy Rating (BER) is as follows:

• A: 2%
• B: 10%
• C: 30%
• D: 24%
• E: 13%
• F: 8%
• G: 14%

This distribution highlights a significant opportunity and necessity for improvement, particularly as legislative changes loom on the horizon that will demand higher energy efficiency standards.

In comparison to the UK, where office landlords may spend up to £63 billion to meet similar standards, Ireland's journey towards energy efficiency presents both challenges and opportunities.

Andrew Cunningham, Director of Offices at Savills Ireland commented:

“We anticipate that A-rated stock will be quickly absorbed due to increasing demand from occupiers aiming to comply with new energy standards, amongst broader ESG considerations. Those who act swiftly to secure this high-quality office space will gain a competitive edge, as the availability of such spaces is predicted to fall significantly as 2030 approaches. Leases over 6 years are the norm, and now extend beyond 2030. Responsibility for adhering to future standards that are already known at the commencement of a lease will become a point of negotiation and are worthy of consideration by all stakeholders in terms of obligations and exposures – landlords, developers, occupiers, and funders.”

Andrew Cunningham concluded: "The shift towards energy-efficient office spaces is not just a regulatory requirement but a strategic asset for landlords and occupiers alike. By investing in high-quality, sustainable properties, occupiers not only derisk themselves from exposure to upcoming regulations, they also enhance the attractiveness and competitiveness of their organisation in terms of key business critical matters as wide ranging as recruitment to sales. Even if they themselves do not wish to reduce their energy consumption, employees and customers are much more informed and selective than they were. They may well take the lead and drive change via selection of employer or supplier. For example, tender pre-qualification and scoring more often include ESG now as criteria, as awarding bodies look to do business with like-minded organisations. Real estate footprint is a readily measurable metric”.