Every commercial property has a range of complex systems that need overseeing. An inspection will be necessary from time to time to keep your building and its infrastructure up-to-date with the latest certifications. Your organization will need to regularly schedule commercial building and energy performance inspections for primary systems such as HVAC and plant equipment.
Since 2014, all commercial buildings in the European Union have been subject to energy performance certificates (EPCs). These require inspections every time the building is put up for sale or on the rental market. Separate EU legislation also applies to inspection reports for heating and cooling systems.
In the U.S., the ENERGY STAR program is responsible for energy performance and quality control inspections for commercial and residential buildings. Third-party energy rating companies typically carry them out, and they will be instantly recognized by their iconic blue label.
Regardless of the size of your CRE organization’s portfolio, performance inspections are an inevitable part of building management. This article will explain how they work in practice, how your CRE business can take steps to prepare for them, and how the efficiency gains from well-maintained equipment can influence environmental benchmarks such as GRESB and LEED.
What is a performance inspection?
When managing a CRE portfolio of any size, you will be expected to undertake regular inspections of the buildings you operate. If you want to sell one of your properties or add to your portfolio, a complete commercial survey will need to be undertaken. This will also apply if you are transferring the building’s lease.
Just as residential home buyers apply for property surveys when purchasing a house, commercial property inspections are necessary for CRE owners to understand everything about the building they are acquiring.
Performance inspections can also cover individual machinery and equipment within the building – each will need reports to ascertain its operational and energy efficiency. Let’s explore both and understand why they are required for commercial property.
Commercial property inspections
A commercial property inspection will achieve the most comprehensive report for a private asset. This is a root-and-branch review of a building and its operational infrastructure. When buying or selling real estate, both parties must be sure that the property is in good condition and that any major faults or defects are identified before exchanging contracts.
A commercial property inspection will examine any existing or potential issues with the property and its compliance with relevant building regulations. This will include:
- Structural defects: These could include cracks, sagging ceilings, or foundation problems.
- Building code violations: Ensuring the property complies with local building regulations.
- Environmental hazards: Checking for mold, asbestos, or lead paint.
- Mechanical systems: Assessing the condition of HVAC, plumbing, and electrical systems.
- Roofing and exterior: Inspecting the condition of the roof, windows, doors, and cladding.
Inspections are not limited to property exchanges. A CRE portfolio manager may also choose to undertake a commercial property inspection to better understand their own building’s performance and plan regular maintenance scheduling. Inspections may also be undertaken if the building is undergoing extensive refurbishment.
Energy performance inspections
As a CRE portfolio manager, you will likely be more familiar with EPC inspections as EU and U.S. legislation requires up-to-date certificates for every commercial building and all equipment with an energy footprint.
EPCs increase transparency for consumers, tenants, and prospective buyers in the CRE space. They create certainty about a building or equipment’s energy efficiency.
Commercial properties with higher-rated EPCs can see as much as a 10% increase in rent and property value across Europe, incentivizing portfolio managers to own the best-performing stock on the market.
How do I prepare for a commercial building inspection?
Anyone who works in property knows the anxiety of building inspections. Much like our own bodies, the buildings we occupy age over time and can develop significant flaws if left unaddressed. Property managers often find it easier to prepare for building inspections if they follow these five key steps:
- Prepare all relevant documentation: Collect all of your property’s paperwork, including building permits, inspection reports, maintenance records, and any recent renovations or repairs.
- Address known issues: Before the inspection, invest in repairs to fix any known problems or deficiencies. This could involve purchasing new equipment, commissioning minor building work, and a deep-clean of the property.
- Communicate with tenants and prospective buyers: It is the CRE manager’s job to Inform tenants or prospective buyers about the upcoming inspection and request their cooperation throughout.
- Consider a pre-inspection: In some cases, it may be beneficial to conduct a pre-inspection yourself to identify potential issues and address them before the official inspection.
- Prepare for questions: Be prepared to answer questions about the property’s history, maintenance, and any recent changes.
During an inspection, evaluators will consider everything from the building’s structural integrity to the performance of key systems such as HVAC and fire safety systems. The specific nature of these reports will naturally vary depending on the country you operate in and its building regulations.
Do I need a performance inspection?
European lawmakers continue to strengthen the requirement for performance inspections, mandating their use in commercial and residential buildings. In 2024, the revised Energy Performance of Buildings Directive (EPBD) will increase the visibility of EPC certificates in property listings, adding clarity to the typical A-G scale used in classification today.
The Directive also puts into place Minimum Energy Efficiency Standards (MEES) for all commercial buildings, with the desired aim of phasing out fossil-fuel-powered HVAC systems by 2040. Commercial buildings must achieve a minimum performance inspection rating of F or higher by 2027, and E or higher by 2030.
A performance inspection will also be needed if your building undergo extensive renovation. To further encourage transparency in the market, the EPC report and its recommendations will be publicly available in all sales and rental documents.
How performance inspections improve operational efficiency
Performance inspections shouldn’t be something to fear; they are necessary within the building industry to set standards for operational efficiency. They promote transparency so that buyers and sellers in CRE know exactly what is at stake. They encourage the phase-out of the worst-performing building stock and equipment in favor of new, more efficient replacements.
As a portfolio manager, you must demonstrate that your building meets high operational efficiency standards to secure environmental benchmarks for your properties. The LEED rating system, for example, will evaluate all building and equipment EPCs to earn the required credits to achieve certification.
The ultimate aim of performance inspections should be to achieve the highest classification possible to maximize operational efficiency, lower operating costs, and present your organization as one that promotes transparency in the pursuit of its ESG goals.
Real estate management made easy with ProptechOS
Regardless of the size of your commercial portfolio, keeping track of your organization’s inspections for each building and system in your operation can be challenging. ProptechOS’s integrated facilities management software makes real estate management easy.
With Certify, your business can automate its certification for key performance regulations and environmental benchmarks. It can certify and re-certify buildings by connecting digital twins and IoT systems into one database, working with you to improve your business’s long-term sustainability record.
Optimize supports performance inspections by helping your organization get the most out of your operational systems. It harnesses real-time analytics data from your portfolio to gauge energy efficiency, doing the job of an EPC inspector to highlight where your organization and individual buildings within your portfolio can save energy.
Your CRE business can sign up for a free trial today.
Per Karlberg
Per Karlberg, a distinguished technology executive, demonstrates deep expertise in the nexus of real estate, technology, and ESG. Holding advanced degrees from Lund University, and with key roles as CEO of our company and Co-Founder of ProptechOS, he has shaped the proptech field through significant contributions to real estate technology advancements. His instrumental work in co-authoring “The realestatecore ontology” has facilitated digital transformation and ESG breakthroughs in the real estate sector.
Read his full bio and information here.
