Half of the 250 European commercial real estate managers that took part in a survey to gauge the impact of energy efficiency regulations on their assets have said they consider at least a third of their portfolios to be already ‘stranded’ owing to poor energy performance.
The findings were part of a survey by data intelligence company Deepki, which interviewed managers with combined assets under management of €226.3 billion across the UK, Germany, France, Spain and Italy.
When asked about the future, half said 20-40 percent of their real estate portfolios are at risk of becoming stranded assets in the next three years – meaning they will experience economic loss because of poor energy performance in the context of revised energy efficiency regulation.
Ninety-four percent of respondents said companies faced a “high” level of risk for properties with sub-standard ESG credentials. These risks include assets having values reduced by the investment market, or due to difficulties attracting tenants and the potential for void periods.
The majority also said it was a management team priority to focus on reducing, mitigating or limiting the financial risk of these buildings, with 15 percent describing it as an extremely high priority, 59 percent saying it was quite a high priority and 26 percent saying it was a medium priority.
The European Parliament is asking owners of existing buildings to phase out fossil fuel usage for heating and cooling by 2040, under the Energy Performance of Buildings Directive, which is designed to reduce greenhouse gas emissions and energy consumption in the European Union building sector. According to European Commission, around 85 percent of buildings in the EU were built before 2000 and among those, 75 percent have a poor energy performance.
Vincent Bryant, chief executive officer and co-founder of Deepki, said: “The European commercial real estate sector faces a stranded asset time bomb due to much stricter energy regulations and commitments to hit fast-approaching net-zero targets,” adding the firm’s research showed “many asset owners and institutional investors do have a strategy in place to address the problem.”
The survey builds on evidence previously published in October by the Urban Land Institute, an industry body, which showed stranded asset risk is being factored into property valuations. Sixty-one percent of 200 respondents to ULI’s survey said they had walked away from potential acquisitions because of concerns about being stuck with stranded assets.
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