Sustainability in real estate in 2026: turning compliance into viable delivery
At a glance
- Viability is now the biggest barrier to sustainability delivery in UK real estate.
- Regulation (UK SRS, CIS reform and BNG) is increasing costs and complexity.
- Sustainability decisions must support value, liquidity and lettability.
- Strong data, governance and tax structuring are now critical.
Sustainability has moved from a reporting topic to a delivery and viability issue for UK property developers and housebuilders. Sector leaders are clear that the challenge isn’t ambition – it’s making schemes stack-up amid cost pressures, planning delays, financing constraints and rising expectations around ESG performance, particularly with the introduction of the new UK Sustainability Reporting Standards (UK SRS).
At the same time, the compliance landscape is becoming less forgiving. From April 2026, Construction Industry Scheme (CIS) reforms materially increase supply chain accountability, creating new financial and operational risk for organisations buying construction services.
Nature is also no longer a ‘nice to have’ within planning: Biodiversity Net Gain (BNG) is now a statutory requirement in England for most developments, with delivery routes that can materially shape programme risk and land strategy.
In this environment, the businesses that are likely to progress at pace will be those that treat sustainability as part of the commercial model, aligning carbon and nature outcomes with funding, tax, governance and data.
The defining 2026 tension: sustainability vs viability
Our Real Estate Sentiment Index (RESI) highlights viability as the dominant barrier to unlocking development and investment across the UK market, with ESG compliance and retrofit capital expenditure frequently cited as contributors to cost pressure.
The same discussion points to a widening gap between what’s being asked for (higher performance standards, more disclosure, faster transition) and what is financially achievable, particularly when affordability limits what buyers and renters can pay.
Sustainability decisions increasingly need to be evaluated like any other investment decision: what protects value, preserves liquidity, reduces delivery risk and supports sales/lettability? That is where boards, lenders and investors are focusing.
We help real estate clients pinpoint the sustainability issues that truly influence value, so they can make better decisions across acquisitions, development, refurbishment and disposal. By connecting sustainability insight with financial and tax considerations, we clarify where targeted action is needed to protect long‑term returns.
Retrofit and ESG upgrades: cashflow matters as much as carbon
Energy efficiency remains a central benchmark across the real estate sector; it’s no longer simply an environmental issue but a driver of competitiveness, investment attractiveness and resilience.
While high EPC ratings and use of low-embodied-carbon materials are key considerations, developers are being increasingly forced to weigh retrofit versus rebuild; a decision shaped not only by embodied carbon and performance targets but by the practical economics of delivery. As noted in our RESI, retrofit can be complex and expensive when aiming for ambitious outcomes and that VAT treatment can be a major factor in project viability.
As sustainability becomes more central to real estate strategy, credibility matters. Investors, lenders and regulators increasingly expect board‑level oversight, robust governance, high‑quality data and transparent disclosure. The winners in 2026 won’t simply be ‘most ambitious’, but those who can structure and evidence sustainability upgrades in ways that support funding conversations and protect returns.
We support clients in strengthening governance frameworks, undertaking materiality assessments (an important early step in any sustainability journey) and preparing for current and emerging disclosure requirements.
Planning and nature: BNG is now a programme risk as well as a policy requirement
Biodiversity Net Gain (BNG) is a statutory planning requirement in England and requires development to achieve at least a 10% uplift in biodiversity value, with delivery through on‑site gains, registered off‑site gains or (as a last resort) statutory biodiversity credits.
BNG is also continuing to evolve: Defra has published further updates and confirmed additional timelines (including how BNG will apply to major infrastructure projects later in 2026), reinforcing that developers should expect ongoing refinement to the regime.
For many schemes, the key is ensuring BNG is addressed early enough so that it doesn’t create late-stage redesign, cost escalation or planning delay.
Tax and incentives: funding the transition without weakening delivery
For housebuilders and developers, ‘sustainability spend’ increasingly overlaps with investment in building systems and site infrastructure – and that puts tax planning and documentation discipline closer to the centre of sustainability and ESG delivery.
Capital allowances remain a key lever, particularly for fixtures and integral features (for example, electrical, heating and air conditioning systems), where relief could materially improve after-tax project outcomes.
Several changes are particularly relevant in 2026 planning:
- A new 40% first-year allowance on new and unused plant and machinery (introduced following the 2025 Autumn Budget) is intended to fill gaps where full expensing doesn’t apply, with further guidance expected.
- The main pool writing down allowance rate reduces from 18% to 14% from April 2026, changing the economics and timing of capital spend where upfront relief isn’t available.
Supply chain governance is now a sustainability issue and a compliance risk
From April 2026, HMRC’s updated CIS guidance makes clear that compliance expectations have increased, with CIS reforms sharpening supply chain accountability and aligning the regime more closely to the VAT “knew or should have known” concept. HMRC can transfer liability and apply penalties of up to 30% where it believes a business should have known it was connected to fraud.
The updated guidance also points to operational consequences: risks around gross payment status and increased administrative obligations, including mandatory monthly returns (including nil returns unless inactivity is notified in advance).
In 2026, governance isn’t just a reporting pillar but a practical control framework that reduces financial and reputational risk across development supply chains.
Data and PropTech: the credibility layer behind sustainability claims
As expectations rise, developers and housebuilders face increasing pressure to demonstrate progress with robust, defensible data – not just narrative.
Our insight on PropTech shows how technology is being used across the property lifecycle (planning, construction, energy use and building management) to support sustainability outcomes and reporting requirements. Smart building tools can optimise energy use, support monitoring, and improve cost transparency, while creating structured evidence for stakeholders.
Many organisations don’t need ‘more reporting’ – they need a better data foundation that makes reporting easier and supports commercial outcomes (sales, lettability, financing).
How Saffery helps real estate clients
Our developers and housebuilder clients typically want the same thing: sustainability plans that support delivery, protect viability and stand up to scrutiny.
We bring together real estate, tax, VAT and sustainability expertise to help clients:
- Identify and prioritise sustainability actions that affect commercial outcomes and risk,
- Improve project viability by aligning ESG capex with available reliefs and appropriate structuring,
- Strengthen governance and supply chain controls as compliance expectations increase, and
- Build the data foundation needed for credible reporting and stakeholder confidence.
If you’d like to discuss what this means for your development pipeline, please get in touch with our Real Estate team.
For a structured starting point, our Sustainability and ESG team can help both developers and investors evaluate their current practices and identify high-impact opportunities through a robust maturity assessment.
