Europe The race to decarbonise

The company analyses proactive actions that investors, owners and occupiers can take to make sure their assets are not left behind and stranded in the race to decarbonise the built environment by 2050. For those European players, already embracing their journey to net-zero-carbon through retrofitting, upfront spending has the potential for long-term rent and capital-value accumulation. Where significant energy saving modifications are introduced, Colliers estimates an average potential uplift of 10 pct in value via the capitalisation of an additional ‘energy rent’ at no additional cost to the tenant.

National and EU-wide goals for energy-efficient buildings are becoming transformational. Environmental, social and governance (ESG) regulations in relation to the built environment continue to tighten, impacting both occupiers and landlords/investors. When it comes to the real estate market, the EU believes that the rate of renovation needs to be at least double its current rate but this is still significantly behind the pace of change recommended by other leading industry think-tanks.
Andy Hay, managing director, EMEA Property Management and ESG at Colliers

According to Colliers EMEA the renovation wave is accelerating the risk that some CRE assets will be left stranded if they fail to adapt to the new regulatory and market requirements. Investors, owners and occupiers are evaluating the steps they need to take to align their assets and processes with EU regulations, long-term financial performance and their own stated commitments to ESG standards.

There is clear momentum in market activity concerning the retrofitting of assets. Notwithstanding the continued work of the EU and national governments and broader social pressure, this momentum is being pushed by market forces – including a drive to lower energy and occupational costs.
Sam Addison, head of enterprise project management, EMEA Occupier Services at Colliers

Colliers’ analysis indicates that despite the upfront costs, investments in retrofitting can yield long-term rent and capital-value accumulation, and points to the success of Bupa, Electrolux and Manpower Group (as featured case studies) as illustrations of how owners and occupiers are already reaping the benefits of proactive renovation strategies across their portfolios. The top two focus areas for investors, when it came to asset retrofitting, were energy efficiency and operational carbon reduction, followed by reducing water usage and embedded carbon. However, there is still a lot of uncertainty amongst investors as to the costs and financing to deliver deep energy renovations.

Nearly half of investors (44 pct) are still unclear as to how much energy adaptations will cost. They don’t know how or from where these upgrades can be financed. There might be some opportunity to leverage green financial instruments – like green bonds – but this will need to be assessed as part of a portfolio audit.
Damian Harrington, head of research, Global Capital Markets & EMEA at Colliers