UK Net Zero Carbon Building Standard: Key Insights & Office Market Impact

Launched in September last year and currently in a pilot phase, the UK Net Zero Carbon Building Standard (NZCBS) establishes a single agreed methodology for measuring and verifying the achievement of a net zero carbon building in the UK. I can say ‘agreed’ because it is the product of an incredible level of pan-industry collaboration. Hundreds of people were involved in its development, including many industry bodies (e.g. BRE, BBP, CIBSE, RIBA, RICS) and developers (e.g. British Land, Landsec, Related Argent, Derwent London). At a high-level, the standard includes:

• Embodied carbon and operational energy performance limits for retrofits and new builds, across 13 different sectors;
• Several other limits, targets, and reporting requirements – summarised in Figure 1; and,
• A verification requirement.

Figure 1: NZCBS summary (source: UK Net Zero Carbon Building Standard)

Known Knowns

1. A single definition of net zero for UK property was needed – Before the NZCBS, there were many definitions of net zero, such as: UK GBC Net Zero Carbon Building Framework; RIBA Climate Challenge; and LETI. Simplifying net zero will level the playing field, streamline elements of design, planning, and procurement, and standardise the net zero ‘product’ on offer to investors, occupiers, LAs and communities.
2. The validation process will increase rigour and consumer confidence – Projects are required to pass a third-party audit before they can claim ‘Net Zero Carbon Aligned Building’. This assessment is to be based predominantly on measured data (including 12 months of operational energy consumption data), and therefore verification can only be completed once buildings are fully in-use.
3. It isn’t meant to be easy – The embodied carbon and operational energy performance limits are based on a combination of top-down modelling of how much carbon we can afford to emit, and bottom-up modelling of what has been achieved to date and what should be achievable in future. Plus, a lot of consultation with industry participants.
4. It’s a voluntary standard, and thus, large parts of the market won’t be caught in its orbit – Unless it becomes regulation or is prescribed in local plans, it will only penetrate so far. Until then, it’ll predominantly be picked up on larger new developments and retrofit schemes, and perhaps on a longer timeframe across a broader section of institutionally owned standing investments.
5. It doesn’t completely deal with the issue of there being ‘too many acronyms in ESG’ – Helpfully, it does do away with several acronyms associated with net zero in development and planning (such as LETI). However, many other related acronyms are going nowhere, e.g.:
   • Part L/EPCs/MEES – The only regulatory ‘sticks’ in our armoury. Focussed on modelled (not actual) energy and carbon improvement/efficiency of ‘regulated’ energy.
   • BREEAM – Prescribed through planning. Assesses and certifies the sustainability performance of a building across a broader range of topics, such as energy, water, and health and wellbeing.
   • NABERS – A voluntary standard requiring annual assessment of actual energy use of offices and benchmarking of performance against other similar buildings.
   • CRREM – Similar to the operational energy performance limits in the NZCBS, but generally less ambitious, and focussed on identifying investment ‘stranding risk’.

Notwithstanding this, NZCBS administrators are looking at agreeing equivalence with other industry schemes/standards in places where there is overlap, such as NABERS UK.

Known Unknowns

1. What the final version of the standard will look like – The standard has initially been released as a pilot for testing. A call for projects went out in November/December 2024, with pilot testing expected to begin in early 2025, and the final version to be issued in late 2025. With some industry participants already calling out certain sector performance limits as too difficult [and in some cases not ambitious enough], it’ll be interesting to see whether significant changes are made as the standard moves from pilot to Version 1. Also, when might the first certificates begin to emerge – 2026?
2. Is the industry ready to put its money where its mouth is – Notwithstanding variability in the retrofit/new build limits across the 13 sectors, and the fact that the standard is still being tested, the current prevailing view is that the requirements of the standard are stretching. Aligning with the NZCBS will cost, and uptake will be affected by the industry’s willingness to [somewhat voluntarily] do the right thing.
3. Will it do enough – Clearly, we’re still a long way behind where we need to be in transitioning the built environment to net zero by 2050. However, the NZCBS has the potential to enable a huge leap forward. What happens next is up to you and me.

Implications for the Office Market

We’ve done a lot recently on office obsolescence through our research and RetroFix campaigns, and are keen to comment on the NZCBS in the context of this issue.

Given that the standard is new and in a pilot phase, we do not foresee any major impact in the short term. However, in time, assuming at least a fair level of uptake in the prime segment, we can see it adding yet more weight to the ‘flight to quality’ scales; driving further polarisation between the top and bottom of the market as it becomes established as a criterion of high rent-paying occupiers at the top, whilst those at the other end of the spectrum struggle to fold the cost of NZCBS into business plans where rents and occupier demand don’t support it.

Also, for adopting segments of the market and because the embodied carbon performance limits are tougher on new builds, it may impact new development viability and deliverability through higher build costs and technical challenges in meeting its requirements. This may further the trend towards refurbishment/retrofit, where embodied carbon and operational energy performance limits are less stretching and presumably more affordable.