Orchard Street Investment Management Transforms Energy Performance Across Industrial Portfolio

12/07/2022

Improving existing building stock is critical to delivering a net zero carbon future for the UK. To accelerate progress towards a net zero portfolio, Orchard Street Investment Management has successfully upgraded an additional 35 industrial units to Energy Performance Certificate (EPC) ratings of B or above, largely through refurbishment, in just two and a half years. Nine units achieved the highest rating A+, predicted to be operationally carbon neutral for regulated building energy. Plans are in place for remaining assets lower than EPC D to be raised to B or above.

22% of industrial portfolio EPC B or above

1,000+ kWp of solar PV, generating clean power

5% of all non-domestic A+ EPCs in England and Wales in 2020 and 2021

Situation

Orchard Street Investment Management is a leading UK-focused commercial property investment manager, acting on behalf of institutional clients worldwide. Recognising climate change as the defining challenge of our time, it is committed to achieving net zero landlord, refurbishment and corporate emissions by 2030, expanded to occupier energy emissions from 2040, far ahead of the 2050 Paris Climate Agreement target. 

In its Roadmap to Net Zero Carbon, Orchard Street Investment Management set a commitment for 50% of assets under management by value to be green certified by 2025 and 90% by 2030. Green certifications include EPC B or above, NABERS UK and BREEAM. Achieving a net zero portfolio will lead to stronger performance for clients, futureproofing assets for shifting market and legislative demands, such as Minimum Energy Efficiency Standards (MEES).

Actions

To help achieve its goals, Orchard Street Investment Management has reviewed EPCs for assets under management across its whole portfolio and put in place plans to upgrade those lower than D, through engagement with occupiers and refurbishment upon vacancy.

Across its industrial portfolio, as of 31 March 2022, Orchard Street Investment Management has:

  • Improved an additional 35 units to EPC B or above since 2020, transforming energy performance across 12% of the industrial portfolio by Estimated Rental Value (ERV). These units previously had EPCs ranging from G to C. Some 22% of the industrial portfolio by ERV is now rated EPC B or above.
  • Achieved nine EPC A+ ratings, predicted to be operationally carbon neutral for regulated building energy, accounting for 5% of all non-domestic A+ EPCs in England and Wales in 2020 and 2021.
  • Installed solar PV arrays across 20 industrial units to generate renewable power, with a cumulative peak capacity of 677 kWp, and a further 350 kWp planned for industrial units in 2022. Large solar PV installations with circa 280 kWp of peak power capacity have also been completed on refurbished units on retail parks. 

At Woodford Green estate in East London, the team refurbished four industrial units to EPC A, from F and E. Efficiency improvements included installing a thermally insulated roof and loading doors, LED office lighting, solar PV panels on the roof and an air source pump for heating and cooling, using variable refrigerant flow (VRF) technology, which is 75% more efficient than conventional cooling systems. There are also eight new electric vehicle charging points to encourage low carbon travel. This refurbishment attracted new occupiers to the estate, including Transport for London, which leased three of the refurbished units to operate its Dial-a-Ride service.

At Gildersome Spur estate in Leeds, the team refurbished a 1970s industrial unit to EPC A, from D. They completed a full replacement of the roof with a modern, insulated system, installed high-thermal performance windows and curtain walling, introduced an air source heat pump and replaced all light fittings with LEDs and panel heaters with efficient modern versions. They also retrofitted an extensive solar PV rooftop array sufficient to supply the majority of the occupier's electricity requirements, saving an estimated 31 tonnes of carbon annually and providing Orchard Street Investment Management with an additional income stream via a Power Purchase Agreement, with the occupier able to buy electricity at a discount to market rates. This refurbishment led to an existing occupier on the estate signing a new 10-year pre-let agreement.

Energy and carbon reductions are part of a wider sustainability programme, including:

  • Improving biodiversity, e.g. installing bird boxes and insect hotels across 40 properties in 2021.
  • Achieving green certifications on developments, including achieving BREEAM Excellent at Albany Point in Frimley and WELL Gold at Bauhaus, Manchester, and targeting BREEAM Outstanding and NABERS UK 4* at 141 Wardour Street, London.
  • Encouraging low carbon travel, e.g. installing cycle parking, e-bike charging spaces, cycle repair facilities and electric vehicle charging.

Financial

  • Costs per m2 vary according to the age, quality and size of the units, and are based on construction costs, which are currently rising.
  • Investment is approved through usual business processes, supported by the asset management team, which values energy performance upgrades. The industrial sector is experiencing high demand for quality space.
  • 22% of the industrial portfolio by value rated EPC B or above, with an estimated rental value of £5.7 million.

Benefits

  • Sustainability credentials: Orchard Street Investment Management’s energy performance upgrades are advancing the progression of its net zero carbon strategy and enhancing the company’s reputation as an industry leader in this area. It is a signatory to the BBP Climate Commitment and a member of the Net Zero Asset Managers Initiative
  • Market appeal: Occupiers looking for space often compare existing assets to new build options, constructed to modern standards. Orchard Street Investment Management has successfully refurbished existing assets to the latest energy performance standards, transforming operational efficiency. It is far more sustainable to retain and reuse, rather than knock down and rebuild. Occupier interest in sustainability is likely to increase further, as awareness about climate change impacts continues to grow and more companies set net zero goals.
  • Cost savings: Improvements in energy performance reduce operational costs for occupiers. Solar PV installations also generate clean power for occupiers to purchase at a discount to market rates and provide an additional income stream for Orchard Street Investment Management’s clients. 

Challenges & Achievements

INTERVENTIONS

 

How do you transform energy performance in existing assets?

Orchard Street Investment Management has tested and proved the power of various interventions to upgrade energy performance in older industrial units. Successful solutions include:

  • Installing insulation on roofs, loading doors and curtain walling to improve thermal performance.
  • Replacing all lighting with energy efficient LEDs.
  • Introducing air source pumps to provide low carbon heating and cooling.
  • Retrofitting solar PV to generate clean power, with a commitment to install 10 MWp of PV capacity by 2030.

The team monitors new technologies. It has gone through a learning curve to discover the benefits of air source heat pumps, which have now been rolled out across multiple properties. It is currently investigating batteries, piloting a 13 kWh Tesla power cell at Communication Park in West London, which stores excess energy generated by the PV for use at night or during lower generation periods. Orchard Street Investment Management is also engaging with occupiers, both around data sharing and opportunities to improve buildings. 

“Our net zero carbon pathway prioritises the continuous improvement of standing assets through refurbishment. The energy efficiency work that has been delivered across our industrial portfolio is testament to the conviction and vision of our team, and I look forward to using our learnings to expand our refurbishment programme to other assets across the rest of our portfolio.”

Philip Gadsden, Managing Partner at Orchard Street Investment Management