Energy-efficient renovation of apartment buildings

When does energy-efficient renovation of multi-family buildings pay off?

Owners of multi-family buildings are increasingly focusing on energy-efficient renovation, as energy-renovated apartments are in much higher demand today than apartments that do not meet resource-conserving standards. In addition, legal requirements regarding windows, façades, or heating systems must be met, and energy-efficient renovation helps preserve the value of properties.

The topic of ESG (Environmental, Social, Governance) for existing buildings is also becoming increasingly important, with a key term being “EU Taxonomy.”

The required standards that property owners must also consider cover a broad range of measures that fall under the concept of sustainability. The requirements range from energy efficiency to fair working conditions for suppliers and service providers. If a multi-family building has been energy-renovated, many of the “Environmental” aspects defined by the EU Taxonomy are already met.

The taxonomy directly affects the marketability of commercial properties and large residential portfolios, as banks and investors evaluate properties according to these criteria.

Renovation backlog: how many multi-family buildings have already been energy-renovated?

Only about ten percent of existing multi-family buildings have insulation that has been upgraded as part of an energy-efficient renovation and meets current requirements.

The same applies to heating systems, around 70 percent of which do not meet today’s standards for energy-renovated buildings. This highlights the significant renovation backlog in the existing building stock. Uncertainties in recent years, such as interest rate spikes, have further exacerbated this backlog.

Do smaller measures pay off in energy-efficient renovation?

To keep a building’s operating costs, especially energy costs, within a moderate range, older properties often require substantial investments in building systems and thermal insulation. Given current funding programs and steadily rising energy prices, it is essential to carefully assess which energy-efficient renovations are worthwhile.

Often, even smaller modernization measures pay off. In any case, the building’s current energy and structural condition should be used as the basis for identifying possible improvements as part of an energy-efficient renovation.

What Is the Difference Between Renovation, Modernization, Refurbishment, and Energy-Efficient Renovation?

Refurbishment / Energy-Efficient Renovation

A standard refurbishment always follows damage, such as a damp basement, dilapidated water and wastewater pipes, or crumbling plaster. Typically, a holistic assessment of the identified defects is performed first, taking into account the building’s life cycle.

In a proper refurbishment, the aim is to restore the building to its original condition while considering current technical standards. Energy-efficient renovations are intended to improve the building’s overall performance. Since interventions in the building are necessary, it should be examined whether they can be implemented simultaneously if economically feasible.

Renovation

Renovation focuses on visual improvements to a property, such as refreshing surfaces with new paint or adapting spaces to changing family needs, personal living preferences, or organizational requirements. Damage does not necessarily have to be present. Generally, renovations are not required to meet modern standards for thermal and moisture protection, sound insulation, or fire protection; they are typically carried out only on interior and exterior surfaces.

Modernization

Modernization goes beyond restoring the original condition of the building and achieves significant technical and energy-related improvements. These improvements must meet the currently required target condition, which can include thermal insulation as well as moisture, sound, and fire protection. Examples include installing external thermal insulation composite systems (ETICS) on the façade, sealing and insulating basements and roofs, or installing windows to improve thermal and sound insulation.

Energy-saving potential: how multi-family buildings benefit from energy-efficient renovation

Existing buildings require about three times as much energy for heating and hot water as new buildings, which means the greatest energy-saving potential in Germany lies in the existing stock. However, for many property owners, an energy-efficient renovation does not pay off immediately, as tenants already cover the costs for gas or oil through the operating cost settlement.

This perspective can, however, become a long-term obstacle to renting. This occurs when, due to steadily rising energy prices, the total rent including operating costs is no longer marketable. As a result, rent reductions or longer vacancy periods may have to be accepted.

Measures for energy-efficient renovation require careful planning and high investments, the payback of which often occurs only after ten years or more. Properly and consistently executed energy-efficient renovation leads to a substantial and lasting increase in the value of the property. It is foreseeable that in the future, the value of a property will increasingly depend on its energy performance.

The advantages of an energy-efficient renovation:

• Lower operating costs

• Increase in value

• Improved living comfort

• Better marketability

Funding: which measures support the energy-efficient renovation of apartments?

The efforts of the federal government and public authorities to support energy-efficient renovation in order to achieve climate targets are extensive and at the same time complex, alongside addressing the housing shortage in Germany. Examples include:

1. Low-Interest KfW Loans for Energy-Efficient New and Existing Buildings

The climate-friendly new construction program (Program numbers KfW 297/298) of the state development bank KfW offers very favorable loans for the construction or purchase of a residential building, provided that these meet comprehensive energy-saving standards. Eligible applicants include virtually anyone, such as private owners, companies, or public institutions. For the initial years of the investment, KfW offers repayment-free periods. Loans can also be agreed for terms of up to 35 years. However, strict sustainability standards apply for loan approval. The loan amount depends on the level of support achieved by a renovation or new construction project.

2. Funding for Energy-Efficient Renovation with the BEG

The Federal Funding for Efficient Buildings (BEG) consolidates several previous programs aimed at supporting energy efficiency and the use of renewable energies in the building sector. This funding supports investments in new heating systems, improvements to existing systems, measures to improve the building envelope, and the use of optimized building technology.

The BEG is divided into three main areas:

• Federal Funding for Efficient Buildings – Residential Buildings (BEG WG)

• Federal Funding for Efficient Buildings – Non-Residential Buildings (BEG NWG)

• Federal Funding for Efficient Buildings – Individual Measures (BEG EM)

Applications for grants under the BEG EM program are submitted via the Federal Office for Economic Affairs and Export Control (BAFA). The administration of the subprograms BEG WG and BEG NWG (municipalities and loan funding) as well as the funding of certain BEG EM measures (such as heat generation systems, excluding the construction or expansion of a building network) falls under the responsibility of KfW.