Why Sustainability Is Becoming a Capital Risk for Office Landlords
How environmental performance is starting to shape leasing, lending, and asset value
With the spectre of 2030 sustainability goals looming large, sustainability is becoming a balance sheet issue.
In the UK office market, buildings that fail to meet evolving environmental standards are no longer just missing an opportunity, they’re less liquid, harder to finance and far harder to let.
As we now represent over 100 floors in prime locations across central London, we have a clear view of how sustainability is already influencing performance. And what we’re seeing is clear: sustainability is now a direct driver of capital risk.
Tenants are demanding greener offices
Demand for office space has continued to grow but, given the wealth of options people are given today, it has also become highly selective.
Layered onto that is the companies with net zero and ESG targets of their own, meaning they’ll only lease offices with good energy ratings and avoid inefficient or high carbon buildings.
A good example of a workspace set up to thrive in this environment is the recently launched office at the Crafts Council headquarters in Islington. The Crafts Council, a charity supporting craft careers and strengthening the UK’s craft ecosystem, needed a building that aligned with its values while remaining commercially viable.
The consequences for unsustainable buildings are ultimately higher vacancy and lower rents.
Regulations are changing and financing is getting stricter
Governments are raising minimum energy performance standards and introducing carbon reporting and penalties, all working towards the 2030 sustainable development goals.
At Crafts Council House, we addressed these changes proactively. The offices sit within a converted chapel and Grade II listed building, an asset type often perceived as difficult to upgrade. Through thoughtful environmental improvements, from enhanced thermal performance to upgraded building services, the building’s EPC rating improved from D to B.
That upgrade, delivered by Soul Spaces at the end of 2025, demonstrates that even complex, heritage assets can futureproof themselves with the right strategy.
Meanwhile, lenders are also tightening criteria. Some UK banks are now rewarding improvement in operational energy performance which is often EPC-based. Benefits typically include fee free arrangements or discounted margins, making it a worthwhile path to explore. Sustainability linked loans, SLLs, are becoming more common and some lenders now offer “transition loans” allowing EPC C–G assets to access green labelled finance if a credible retrofit plan is in place.
Those that can’t evidence progress now risk higher capital costs, with poor performers facing higher interest rates or refused loans.
Asset values are being “repriced”
Sustainability is now being priced in by occupiers, lenders and investors alike. If the past year has taught us anything, it’s that EPC and ESG performance are now actively influencing lending terms and market liquidity. Lenders are assessing future risk, obsolescence and asset viability through EPC ratings, operational efficiency and the quality of proposed retrofits.
And investors are applying the same logic in valuations and exit assumptions, with buildings that don’t have clear sustainability strategies facing deeper discounts and reduced liquidity.
Poorly executed retrofits are a growing capital risk
The biggest mistake landlords can make is retrofitting cheaply or reactively, only to face further refits later when the space won’t let or meet lender expectations.
Lower cost refurbs and quick fixes may look fine today, but fail under tighter regulation and refinancing, meaning landlords end up paying twice. In contrast, an ‘invest once, invest properly’ mindset can protect asset value and income streams, and aligns assets with how banks and investors are already thinking.
Knight Frank analysis of London offices shows that assets upgraded from EPC C/D to EPC B+ narrowed the capital value gap to prime stock by 19 percentage points. Only comprehensive, performance-led upgrades deliver meaningful value recovery.
Sustainability investment is an asset and form of commercial foresight. It helps to protect asset value, ‘lettability’ and funding options over time. Buildings with weaker EPC ratings face a higher risk of obsolescence as regulation tightens toward 2030, making them less attractive to finance or refinance.
In short, ignoring sustainability means making an active decision to accept higher leasing risk, tighter funding, weaker liquidity and accelerated capital erosion.
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