_Sustainable retrofitting of commercial buildings: bridging ESG and asset management

70% of commercial property floor space is currently rated EPC C or below and, therefore, is at risk of being unlettable if previously proposed minimum standards are implemented in the UK. The sustainable retrofitting of commercial buildings is becoming an integral part of the conversation, as companies aim to minimise carbon footprints and maximise energy efficiency. In the UK, where carbon reduction targets loom, retrofitting has emerged as a critical tool in achieving both ESG objectives and improving the value and performance of real estate portfolios.

The role of property asset management in sustainable retrofitting

Incorporating ESG into asset management is no longer an option but a necessity.

Retrofitting commercial buildings is integral in ensuring that the ESG ambitions for a building are reflected in the energy performance of the asset. Through the use of industry benchmark data, facilitation of energy audits and implementation of smart metering strategies, asset managers can ensure that retrofitting decisions are evidence-based. This approach helps inform which retrofitting strategies should be adopted, balancing operational needs and long-term energy performance goals. Understanding how a building is used by occupants on a day-to-day basis is crucial to this process and emphasises the important role of the property manager in the retrofit decision-making process. This strategic approach to retrofit solutions ensures that the right solution can be implemented for the building user’s needs whilst ensuring that energy efficiency targets are achieved.

Retrofitting: light vs. deep approaches

The retrofitting of commercial buildings can generally be divided into light and deep retrofits. Light retrofits, such as LED lighting upgrades, are often seen as "quick wins" and can be achieved without significant disruption to building occupants. These less invasive upgrades are critical in reducing energy consumption and improving a building’s Energy Performance Certificate (EPC) rating. As highlighted in our research, Sustainability Series paper, Part 1: Defining a Strategy, 65% of properties that improved their EPC rating to a minimum of B did so by installing LED lighting with smart controls. This demonstrates that with the right strategies in place, substantial improvements can be made even with occupiers in situ, mitigating downtime and enhancing tenant satisfaction.

On the other hand, deep retrofits, such as window replacements or installing wall insulation, are far more complex and typically require vacant possession of the building or floor. These often occur when a tenant is expected to vacate, or a strong landlord-tenant partnership is willing to accommodate the disruptions. However, as demand for sustainability grows, more tenants are open to discussing temporarily vacating in exchange for long-term energy savings and alignment with their own carbon reduction targets.

Key asset repositioning challenges and solutions

While the advantages of retrofitting are evident, there are hurdles to overcome. One major challenge is the balance between operational carbon emissions (from energy usage) and embodied carbon (the emissions resulting from the retrofit process itself). As asset managers, it is critical to consider not only the operational carbon savings but also the overall carbon impact of any retrofitting activity. For instance, replacing a gas boiler with a heat pump only two years after installation may reduce operational carbon emissions, but the embodied carbon from early replacement might counteract those benefits. Decisions like these require careful evaluation, often supported by ESG consulting teams conducting energy audits and electrification surveys. Knight Frank’s ESG Consulting team can offer specialised support in embodied carbon reporting and assessment, including for retrofit and refurbishment of existing assets, to ensure that operational and embodied carbon impacts can inform the decision-making process.

Building management system (BMS) optimisation through the implementation of proptech solutions is gaining traction as another evidence-led approach to improving the operational efficiency of buildings.  BMS adjustments, informed by real-time data and sensors, enable smarter, more responsive energy usage management. For instance, occupancy sensors can ensure that lighting and HVAC systems are only operational when spaces are in use. While some solutions are still being piloted, there is increasing interest in these technologies aiming to fine-tune a building’s energy efficiency whilst reducing the need for large-scale physical interventions.

Long-term benefits and market trends

Sustainable retrofitting of commercial buildings not only aligns with ESG goals but also mitigates future financial risks. As the UK government pushes for more stringent ESG regulations and higher EPC requirements, buildings that do not meet these standards could become stranded assets, losing value and increasing operational costs. By mapping out these risks and using tools like the Carbon Risk Real Estate Monitoring (CRREM) tool, we can make informed decisions about when and how to invest in repositioning an asset. According to our ESG Property Investor Survey, 53% of investors seek a CRREM analysis before acquiring a new asset. Retrofitting is a proactive solution that delays obsolescence, reduces energy expenses, and positions properties more favourably in the market.

There is a growing appetite for sustainability from occupiers of commercial real estate, with over 40% of office space currently leased in London by professional companies rated as BREEAM Outstanding, BREEAM Excellent or EPC A. Increasingly, tenants demand that their landlords implement sustainable practices as part of the leasing arrangement. This shift creates opportunities for asset managers to negotiate retrofitting agreements that benefit both parties—offering tenants enhanced environmental credentials and reduced energy costs while landlords gain increased property value and regulatory compliance.

ESG and retrofitting as strategic imperatives

For asset managers, aligning with ESG objectives through sustainable retrofitting is crucial. Whether through light retrofitting efforts or more comprehensive deep retrofits, the long-term financial and environmental benefits far outweigh the initial disruptions or costs. As the pressure for sustainable commercial properties intensifies, the role of asset management in retrofitting cannot be overstated. By guiding clients through the complex process of carbon reduction pathways and finding evidence-led energy optimisation solutions, asset managers have the opportunity to lead the way in transforming the built environment for a sustainable future.

Key takeaways for retrofit solutions 

They need to be: 

• Evidence-based, considering energy usage data and occupier building information
• Aligned with industry best practice targets and benchmarks to ensure regulatory risk is managed
• Considered alongside embodied carbon reduction to ensure solutions are not inadvertently increasing indirect carbon emissions

How can we support you with retrofitting?

Our Property Asset Management team is pivotal in guiding clients through the often complex process of integrating ESG strategies into their real estate portfolios. We translate high-level ESG ambitions into actionable, practical steps supporting carbon reduction pathways.

We create a bridge between ESG goals and the practicalities of managing and upgrading real estate assets. We work closely with clients to track building performance and align retrofitting projects with the needs of occupiers.

Get in touch to find out how we can help you.

In the first of our three-part sustainability series, Defining a Strategy, we explore how to tackle the commercial property retrofit challenge. Our research provides in-depth insights into obsolescence risks and offers practical guidance to help shape your decarbonisation strategy and enhance property performance.