Trend watch: Building performance standards & compliance in 2026 — signals, winners, and red flags

Building performance standards (BPS) have shifted from voluntary aspirations to legally binding mandates across major markets, and 2026 marks the year that enforcement teeth begin to bite. Over 40 cities and states across the United States now have active or pending BPS legislation, the UK has tightened its Minimum Energy Efficiency Standards (MEES) with a trajectory toward EPC Band C by 2028, and the EU's Energy Performance of Buildings Directive (EPBD) recast requires all new buildings to be zero-emission from 2030. For building owners, asset managers, and sustainability professionals, the compliance landscape is no longer a distant planning exercise. It is a present-tense operational and financial reality.

Why It Matters

Commercial and residential buildings account for approximately 36% of global final energy consumption and 37% of energy-related CO2 emissions, according to the United Nations Environment Programme's 2024 Global Status Report for Buildings and Construction. Despite decades of voluntary green building certification programs, the overall energy intensity of the global building stock has declined by only 1-2% per year, far below the 3-4% annualized reduction needed to align with Paris Agreement targets.

BPS legislation represents a fundamental shift in approach: moving from incentive-driven voluntary action to mandatory, enforceable performance thresholds with financial penalties for non-compliance. In the UK, the government's Clean Growth Strategy and subsequent consultations have confirmed the trajectory toward requiring all rented commercial properties to achieve at least an EPC Band B by 2030, with an interim target of Band C by 2028. Properties that fail to meet these thresholds face prohibition from being let, effectively stranding non-compliant assets. The UK Green Building Council estimates that approximately 80% of commercial properties currently fall below the EPC Band B threshold, suggesting a retrofit wave of unprecedented scale.

The financial implications are substantial. JLL Research estimates that green premium differentials for compliant versus non-compliant commercial buildings in London have widened from 5-7% in 2022 to 12-16% in 2025. Simultaneously, "brown discounts" for non-compliant assets have deepened, with some secondary office properties trading at 20-30% below comparable compliant stock. For institutional investors managing diversified real estate portfolios, BPS compliance has become a core determinant of asset valuation and liquidity.

Key Concepts

Energy Use Intensity (EUI) measures a building's annual energy consumption per unit of floor area, typically expressed in kWh per square meter in the UK. BPS regulations typically set maximum EUI thresholds by building type and climate zone. Understanding baseline EUI is the essential first step in any compliance strategy, as it determines the magnitude of efficiency improvements required. The UK's Display Energy Certificate (DEC) program for public buildings provides benchmarking data, while commercial properties rely on Energy Performance Certificates (EPCs) that combine modelled and, increasingly, operational energy data.

Energy Performance Certificates (EPCs) rate buildings from Band A (most efficient) to Band G (least efficient) based on standardized assessments. Current UK MEES requirements mandate a minimum of Band E for rental properties, but the planned escalation to Band C (2028) and Band B (2030) for commercial properties will require substantial investment in building fabric, heating systems, and controls. The methodology underpinning EPCs has faced criticism for relying on modelled rather than metered energy performance, leading to ongoing reforms that will incorporate operational energy data.

Operational Energy Performance represents actual metered energy consumption, distinct from the design-stage or modelled performance captured in traditional EPCs. The gap between modelled and operational energy performance (the "performance gap") typically ranges from 30-60% in commercial buildings. Emerging BPS frameworks increasingly mandate disclosure of operational energy data, closing this gap and enabling more accurate benchmarking. The NABERS UK scheme, adapted from Australia's successful National Australian Built Environment Rating System, provides a framework for operational ratings that several UK local authorities are now considering for adoption.

Stranded Asset Risk describes the potential for buildings to lose value or become unlettable due to failure to meet rising performance standards. The Carbon Risk Real Estate Monitor (CRREM) provides decarbonization pathways for commercial real estate, identifying the year at which specific assets become "stranded" relative to Paris-aligned trajectories. CRREM analysis indicates that approximately 60% of European commercial office stock faces stranding risk by 2030 without significant retrofit investment.

Signals That Matter

Regulatory Acceleration Beyond Expectations

The pace of BPS adoption has consistently exceeded forecasts. In the UK, the Future Homes Standard (effective 2025) requires new homes to produce 75-80% less carbon emissions than under previous Part L regulations. Several London boroughs, including the City of London and Westminster, have adopted or proposed local performance requirements that exceed national minimums. The Greater London Authority's "Be Seen" policy requires new developments to report operational energy data for five years post-completion, creating precedent for operational performance accountability.

Across the Atlantic, New York City's Local Law 97 began imposing carbon penalties on buildings exceeding 25,000 square feet in 2024, with penalty rates set at $268 per metric ton of CO2 equivalent. Washington DC's Building Energy Performance Standards require buildings to reduce energy consumption by 20% per compliance cycle. Boston's Building Emissions Reduction and Disclosure Ordinance (BERDO) mandates net-zero emissions by 2050 with interim targets. These US precedents are influencing UK policymakers considering similar penalty-based enforcement mechanisms.

Financial Markets Pricing Compliance Risk

Major institutional investors have begun systematically integrating BPS compliance into acquisition due diligence and asset management. Legal & General Investment Management, managing over £1.2 trillion in assets, now requires ESG assessments including EPC trajectories for all real estate allocations. British Land has committed £1 billion to retrofit programs targeting EPC Band B or better across its 25 million square foot portfolio. The UK Green Finance Institute's Green Building Passport initiative aims to standardize the data infrastructure needed to link building performance to financing terms, enabling green mortgages and sustainability-linked loans tied to verified energy performance.

Insurance markets are also responding. Swiss Re and Munich Re have begun incorporating climate-related building performance data into commercial property underwriting, with premium differentials emerging between high-performance and low-performance buildings, particularly for flood and heat stress exposure.

Technology Enabling Cost-Effective Compliance

Heat pump installations in the UK exceeded 300,000 units in 2025, up from approximately 55,000 in 2021, driven by the Boiler Upgrade Scheme grants and tightening regulations. Air-source heat pumps now deliver seasonal coefficients of performance (SCOP) of 3.5-4.5, making them economically competitive with gas boilers over a 15-year lifecycle even without subsidies in many applications. Building fabric improvements including external wall insulation, triple glazing, and airtightness treatments have seen cost reductions of 15-25% since 2022 due to supply chain scaling and standardized installation methods.

Smart building controls and AI-driven optimization platforms add another layer of compliance capability. Platforms from companies such as IES, Demand Logic, and Hark enable continuous monitoring and optimization of operational energy performance, helping building operators identify and close the performance gap between design intent and actual operation.

Winners and Losers

Winners

Retrofit-focused contractors and consultants are experiencing strong demand growth. Companies specializing in deep energy retrofits, including Energiesprong-style whole-building solutions, are expanding capacity. Willmott Dixon Energy Services and Engie UK have both reported 40-60% revenue growth in their retrofit divisions between 2023 and 2025.

Building performance technology providers benefit from mandatory monitoring and reporting requirements. Companies offering operational energy monitoring, automated compliance reporting, and digital twin-based optimization are seeing rapid adoption. The UK PropTech sector attracted over £800 million in venture capital in 2024-2025, with building performance platforms representing the largest segment.

Owners of high-performance assets command growing premiums. GRESB data shows that properties rated in the top quartile for energy performance achieved 8-12% higher rental income and 15-20% lower vacancy rates compared to bottom-quartile assets in UK commercial markets during 2024-2025.

Losers

Owners of secondary commercial stock face the most acute compliance challenges. Buildings constructed before 1990 without significant retrofit investment typically hold EPC ratings of D-F, requiring capital expenditure of £40-120 per square meter to achieve Band C. For buildings where the gap to compliance exceeds the asset's rental yield, the rational economic response may be disposal or conversion rather than retrofit.

Landlords with short remaining lease terms face a misalignment between retrofit investment horizons (typically requiring 7-15 year payback periods) and lease durations. Split incentive problems, where tenants benefit from lower energy bills but landlords bear capital costs, remain a significant barrier despite green lease provisions gaining traction.

Red Flags to Watch

EPC methodology reform uncertainty creates compliance planning risk. The UK government has signalled reforms to EPC methodology, potentially incorporating operational energy data and expanding the scope of assessment. If the new methodology produces materially different ratings than current assessments, buildings assumed to be compliant could suddenly face shortfalls. Building owners should avoid over-reliance on current EPC ratings and instead invest in understanding actual operational energy performance.

Skills and labour shortages threaten retrofit delivery at scale. The Construction Industry Training Board estimates that the UK needs an additional 350,000 workers trained in retrofit skills by 2030 to meet BPS compliance demand. Current training pipelines are producing approximately 25,000-30,000 qualified retrofit installers annually, suggesting a significant capacity gap. Projects requiring specialized skills (heat pump installation, external wall insulation, airtightness testing) face lead times of 6-12 months in many regions.

Enforcement inconsistency across local authorities undermines market confidence. While some local authorities actively enforce MEES requirements with dedicated compliance teams, others lack resources for systematic enforcement. This uneven landscape creates competitive distortions and may reduce the urgency of compliance investment in areas with weaker enforcement. The introduction of a national compliance database and standardized enforcement protocols would significantly strengthen the BPS framework.

Embodied carbon blind spots represent a regulatory gap. Current BPS frameworks focus almost exclusively on operational energy, but embodied carbon from retrofit materials (insulation, windows, mechanical systems) can represent 20-40% of a building's total lifecycle carbon. As regulatory frameworks mature to incorporate whole-life carbon, buildings retrofitted with high-embodied-carbon materials may face additional compliance requirements.

Action Checklist

• Conduct operational energy assessments across all assets using metered data, not relying solely on EPC modelled ratings
• Map each asset against CRREM decarbonization pathways to identify stranding risk timelines
• Develop asset-level retrofit roadmaps with phased investment plans aligned to regulatory compliance deadlines
• Engage with tenants on green lease provisions to address split incentive barriers for retrofit investment
• Secure retrofit contractor capacity early, given growing lead times and skills shortages in the market
• Monitor EPC methodology reform consultations and model the potential impact of revised ratings on portfolio compliance
• Establish operational energy monitoring infrastructure for continuous performance tracking and compliance reporting
• Evaluate financial instruments including green loans, sustainability-linked bonds, and government grant schemes to fund compliance capital expenditure

Sources

• United Nations Environment Programme. (2024). 2024 Global Status Report for Buildings and Construction. Nairobi: UNEP.
• JLL Research. (2025). UK Green Building Premium Tracker: Q4 2024. London: Jones Lang LaSalle.
• UK Green Building Council. (2025). Retrofit Readiness: UK Commercial Property Stock Assessment. London: UKGBC.
• Carbon Risk Real Estate Monitor. (2025). CRREM Global Decarbonisation Pathways, 2025 Update. Worms: Institute for Real Estate Economics.
• Construction Industry Training Board. (2025). Skills Forecasting Report: Net Zero Buildings Workforce. Norfolk: CITB.
• Greater London Authority. (2024). Be Seen Energy Monitoring Guidance: Year Two Review. London: GLA.
• British Land. (2025). Annual Sustainability Report 2024/25. London: British Land Company plc.