The RICS Red Book, updated in March 2025, made the integration of ESG considerations a mandatory practice when valuing properties. In London, there is a wealth of assets enjoying a ‘green premium’ alongside contrasting buildings with poor ESG credentials which risk being left behind.
Partners Tom Norfolk and Phil Winckles in our valuation team, believe that permitted development could act as a ‘silver bullet’ for the owners of under-performing assets, enabling them to repurpose buildings and transform them from liabilities into competitive properties, thereby preserving asset value.
London is a global centre with mature, transparent, and sophisticated real estate stakeholders, so has therefore been at the forefront of the nation’s property ESG journey.
The City has countless examples of assets enjoying a ‘green premium.’ Buildings with Building Research Establishment Environment Assessment Methodology (BREEAM) certification, low emissions and strong occupier engagement will continue to perform strongly from a transactional perspective.
In contrast, buildings with poor ESG credentials, particularly where the viability of retrofitting is questionable and data benchmarking is patchy, will be subject to what is termed a ‘brown discount’.
If landlords and owners of brown discounted assets want to compete in a market populated by educated and discriminating occupiers and purchasers, they risk being left behind with stranded assets or portfolios.
A potential ‘silver bullet’ for this scenario could be permitted development or Prior Consent, allowing for changes to the use of a building without the need for full planning permission in certain circumstances. A good example of this is the change of use from office to residential.
This flexibility can play a critical role in addressing ESG challenges as it offers a viable route for owners of underperforming assets to repurpose them in ways that improve environmental performance, social value, and long-term viability.
For instance, converting outdated office space into energy efficient residential units not only reduces vacancy and waste, but also aligns with sustainability goals, extends the building’s lifecycle and potentially incorporates modern, low carbon technologies. More specific to the residential letting sector is the fact that new developments, with strong ESG credentials, are already performing better than older stock with poor energy efficiency.
By enabling more adaptive reuses of buildings, changing use can bridge the gap between current ESG shortcomings and future proofed, higher-performing assets, transforming liabilities into competitive, compliant, and desirable properties in the marketplace. We do acknowledge the necessity to balance the availability of business space in core areas and the risk that residential use encroachment has the potential to undermine our global CBD credentials. Fringe stock being repurposed lends to the strengthening of core area though.
Putting a value on ESG factors and the impact they will have on the operational and financial aspects of a business will ensure that investors, tenants and landlords are better incentivised to think strategically about their carbon footprint, energy efficiency and social impact, while ultimately enhancing the value of assets and portfolios they own and improving the efficiency of London’s real estate as a whole.
Find out more about our valuation consultancy services.
Read the full report - "The Green City" and our new London office brochure.
Visit our London landing page.