Tenants are increasingly seeking buildings that support sustainability targets, cut operational costs, and address Scope 1, 2, and 3 emissions. This shift is transforming the logistics market, dividing assets that meet modern ESG standards from those that don’t.

Rental premiums 

Buildings with stronger ESG credentials, especially higher EPC ratings, attract rental premiums and are redefining what qualifies as ‘Grade A’. As the UK  moves towards decarbonisation, regulatory pressure, investor expectations and tenant demand are driving more sustainable asset performance, further widening this gap.

To examine this bifurcation, Savills analysed 673 (new/direct) leasehold deals signed since 2020 where EPC ratings were available, including a mix of new and second-hand units of all grades exceeding 100,000 sq ft, excluding sublets, assignments, and freehold sales. As not all built-to-suit transactions (BTS) have a known EPC, assumptions were made that they’re built to at least an ‘A’ rating. The findings were consistent across regions, indicating that, on average, buildings with an EPC of A+ or A achieved a premium compared to those rated C or lower. At an aggregate level, this was 55% nationally.

Location, location, location

Lower rents today are consistently associated with buildings that have poorer energy performance, which are increasingly viewed as less desirable by ESG-conscious tenants. However, it’s not the only factor influencing rental values. Location remains crucial. Even if a building has a higher EPC rating, a comparable property in a prime location is likely to command higher rents, often due to its geographical advantages or proximity to labour and major motorways. This helps to clarify the regional differences observed in the data.

The East and West Midlands - the ‘golden triangle’ - recorded some of the highest rental premiums. In the East Midlands, A+ and A-rated units averaged £8 per sq ft, compared to £5.60 for buildings rated C or lower, reflecting a 42% premium. In the West Midlands, the premium was 38%, with rents averaging £7.85 versus £5.70. Other notable regions (see chart), included the Inner M25 with a 61% premium, the South East (52%), and the South West (36%).

The case for refurbishment

The premium also applies to larger units, making a strong case for extensive refurbishment: the average rent achieved for buildings between 100,000 and 299,999 sq ft with an EPC rating of A+ or A was £9 per sq ft, compared to £6 for buildings rated C or below, representing a 50% premium. For units between 300,000 and 500,000 sq ft, the rental premium was even higher, at 57% on average.

This is especially important for landlords with major corporate tenants. These occupiers often have ambitious net-zero targets, which shareholders, regulators, and customers expect to see progress on. Consequently, they’re actively prioritising buildings that enhance energy efficiency, reduce carbon emissions, and ensure long-term operational resilience. Larger occupiers also tend to manage more complex and costly portfolios, making energy-efficient buildings essential for controlling operational costs.

The case for landlords to invest in retrofitting programmes is compelling. The data shows that retrofitting offers a clear chance to add value to existing assets, meet changing market expectations, and help create a more sustainable future. In a market increasingly influenced by ESG compliance and tenant demand, failing to upgrade risks assets becoming obsolete.

Further information

Contact Lewis Rapley