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Retrofit versus new build: Balancing risk, return, and ESG

23/06/2026 · 7 minute read

When delivering retrofit and refurbishment projects, UK developers and landlords are facing challenging commercial choices, driven by increasing regulation, 2030 net-zero targets, and the revised 2031 deadline for Minimum Energy Efficiency Standards (MEES). Discover how to maximise opportunities by balancing delivery risk, whole-life cost, insurability, and environmental, social, and governance (ESG) performance early enough to influence design and funding.

The clock is ticking for UK construction companies: the need to achieve an EPC C rating for projects by 2030 is transforming the built environment. Forward-thinking firms are shooting higher and looking to attain a higher rating of EPC B, which could help owners and buyers unlock premium rental yields, reduce tenant turnover, gain access to better mortgage rates, and future-proof portfolios against regulatory changes.

Regulations are tightening, making it harder to manage the variables for retrofit and refurbishment projects that unlock growth and delivery. As a result, it’s important to stress-test retrofit and new-build options through early feasibility, lender-ready evidence, and insurability reviews. This way, potential surprises in condition, programme, or cover are less likely to erode value or cash flow.

Costs are rising on both sides of the ledger. Acquisition and holding costs remain high, while costs continue to climb for upgrading fabric, mechanical, electrical and plumbing (MEP), and controls. Meanwhile, a failure to act promptly increasingly threatens lettability, financing, and exit pricing, as the market tightens around energy performance.

It could be helpful to treat EPC C+ as a portfolio triage, rather than a last-minute compliance sprint. Prompt decision-making is advisable, too. If it’s unlikely that an asset can’t reach EPC C within a realistic budget, programme, and risk appetite, the earlier you dispose, reposition, or redevelop the asset, the greater your options.

Retrofit versus new build: The trade-off that matters

Retrofit or refurbishment can be the fastest route to improved performance, while preserving embodied carbon and keeping a prized location in play. Done well, it can also support social value by reducing demolition waste and limiting community disruption.

But retrofits could also amplify unknowns. Older assets can hide defects, legacy materials, and incomplete records. Intrusive surveys may be constrained by tenant access or tight acquisition timelines. Interfaces between existing structures and new works can increase programme risk, and issues such as asbestos or fire safety remediation can quickly push budgets.

New builds can deliver design clarity and performance certainty, but typically bring higher capital exposure, planning and stakeholder complexity, longer construction programmes, and a tougher embodied-carbon conversation.

To make the best value decision, test technical feasibility, then examine bankability and insurability before you lock concept design or purchase terms.

Bankability: What lenders look for

Increasingly, Marsh Risk is seeing lenders place more emphasis on ESG during their underwriting decisions, with some even willing to offer favourable conditions and rates for credible projects. Strong cases link energy performance to an evidence-based approach: a credible energy model, a realistic Capital Expenditure (CapEx) and Operating Expenditure (OpEx) view, schedule logic, and governance that can handle change without derailing returns.

ESG strengthens credit when it is measurable. Clear transition milestones, defensible data, and evidence of delivery capability can reduce perceived execution risk. Early pre-underwriting discussions also reduce late redesign — often the most expensive moment to change scope.

A concise evidence pack can help include: an energy strategy summary; a survey and intrusive investigation plan; an initial risk register; programme phasing; a tenant strategy; and a procurement route rationale with contingencies aligned to known unknowns.

Insurability: Design it in

Underwriters often view retrofit as a dual exposure: the existing structure carries ongoing risk, while new works introduce additional perils. If responsibilities and cover are not aligned across owners, contractors, and funders, gaps can emerge when the project is most financially sensitive.

Typical friction points include legacy materials, uncertainty around fire performance, water-damage controls during live works, hot-works management, and phased handovers where parts of a building remain occupied.

Early engagement with risk engineering and insurance can help teams design out insurability barriers, reduce exclusions, and stabilise pricing expectations. This matters for EPC upgrades because many measures touch MEP, façade, and controls — areas that influence both performance and loss drivers.

Delivery reality: Preventing programme shocks

Retrofit programmes can become lengthy or challenging to deliver when unknowns become contractual disputes or programme shocks. Technical due diligence is the first line of defence. In addition, the commercial strategy should look to absorb uncertainty. Early contractor involvement, integrated contracting models, and realistic allowances improve alignment on sequencing. Clear change control, along with incentives that reward collaboration on phased works, can reduce overruns. Common flashpoints include site access and unforeseen asbestos, structural defects, rotted joists, and unexpected utility layouts.

Balancing ESG goals: Key considerations

selected option

Design to not only bring a building up to standard to meet current needs but also consider adaptability for future use and demand. You should also design with insurance in mind, as this supports the early engagement to assess insurability in construction and in operation.

Collaboration is key. Choose your partners wisely. Construction firms need to be experienced in retrofitting and the use of sustainable materials, and, ideally, in circular economy principles and methods. From an insurance perspective, a construction insurance broker’s role transcends placement. It involves bringing together and facilitating the various partners to enable many elements of a project, including starting on time, supporting output, and the cost-benefit balance, in addition to placement and claims. Early engagement and understanding of all parties are paramount to project delivery.

Use of technology to monitor the performance and use of a building should be put in the hands of proactive building management to ensure continuous efficiency —and cybersecurity — is achieved.

Innovation and modern methods of construction (MMC)

Retrofits and refurbishments are inherently innovative, and ESG is helping broaden innovation. However, navigating regulatory challenges and targets can create additional variables and challenges. Despite this, Marsh Risk is also seeing an increase in innovative thinking, solutions, and opportunities that are creating positive outcomes for owners and developers. These are helping them reach not only their commercial goals but also drive their values, delivering positive impacts and change for communities.

Practical innovations include improved insulation systems, replacement glazing, and smarter MEP upgrades. Companies are also improving adaptability and repurposing and reimaging spaces to convert underutilised areas, unlocking added value. By thoughtfully considering ESG requirements, commercial viability, and project delivery, owners and developers can identify practical levers to balance net carbon goals with cost and schedule.

Futureproof your refurbishment project

Latent defects insurance is on the rise for existing buildings

With refurbs and retrofits making up an increasing share of a developer’s portfolio, construction firms are purchasing latent defects insurance (LDI) to mitigate risk, support them to overcome challenges, and enable project delivery. Benefits of LDI include attracting development funding, mitigating contractor insolvency, managing unforeseen historical flaws, and satisfying the Building Safety Act.

Discover the key considerations for developers who wish to purchase LDI in these circumstances in Marsh Risk’s fact sheet, Refurbishing existing buildings: Increased interest for latent defects insurance (LDI). Please contact us for more details about obtaining LDI cover.

Social value: Rethinking places

Carbon-driven programmes can also improve the occupier proposition. Health, flexibility, and predictable operating costs increasingly shape leasing decisions, and they can be built into refurbishment and fit-out strategies.

Done well, these projects can support regeneration through thoughtful phasing, disruption management, and participation in local supply chains. The goal is future-proofing: avoid short-term fixes that create rework and, instead, align upgrades with a credible, long-term investment approach.

The role of the insurance broker and added value

Whether the right answer is retrofit, major refurbishment, or new build, organisations that act early will be best positioned to balance ESG performance with cost, keep assets lettable, and protect return.

The successful delivery and outcomes of these projects require the involvement of multiple stakeholders. A construction insurance broker can enable and facilitate these differing stakeholders in enhancing collaboration.

Marsh Risk can demonstrate industry expertise and long-term risk management relationships to provide construction firms with the best-value coverage, with optimal terms and conditions. 

Your Marsh Risk contact

Craig Charles

Craig Charles

Managing Director, Owners & Developers, UK Construction, Infrastructure & Surety Practice

  • United Kingdom

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