The developments are unfolding as the commercial market struggles to bounce back after years of turmoil caused by rising interest rates and volatile post-pandemic occupancy rates.
 "Commercial buildings left behind across Europe due to poor energy performance")
Asset managers with a combined total of 226 billion euros ($242 billion) in assets under management in Britain, Germany, France, Spain and Italy are adapting to tougher energy efficiency requirements that are only now coming into force | Photo: BloombergBloomberg
Francis Schwarzkopf
Commercial property fund managers say they now hold a significant portion of their portfolios in assets that they consider to be stranded because of energy efficiency requirements being introduced in Europe.
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According to a study published by Deepki, a data intelligence company focused on energy efficiency, more than half of the nearly 250 European commercial real estate portfolio managers surveyed admitted that more than 30% of their assets are currently stranded.
“These are buildings that have lost value due to poor energy performance,” the authors wrote in the report, released Wednesday.
Asset managers with a combined total of 226 billion euros ($242 billion) under management in the UK, Germany, France, Spain and Italy are adapting to tougher energy efficiency requirements that have only just come into force after the European Union passed the Energy Performance of Buildings Directive (EPBD), which is part of a growing number of net-zero regulations.
EU banks have already responded by setting tougher conditions for commercial real estate lending: BNP Paribas, the EU's largest bank, is currently aiming to reduce the emissions intensity of its portfolio by up to 41% by 2030. Other banks, including Banco Santander, Barclays, ING Group and NatWest Group, have either taken similar measures or are considering them.
Deepki CEO Vincent Bryant said he frequently sees banks raising the cost of lending to commercial property clients who don’t meet green energy standards.To manage these risks, banks are increasingly turning to tools such as the Carbon Risk Property Monitor (CRREM) to screen clients.
Banks are telling customers that if they don't comply with the CRREM, their interest rates could rise by as much as 15 basis points a year, Mr. Bryant said in an interview. Conversely, banks that perform better should see lower borrowing costs, he said.
The developments are unfolding as the commercial market struggles to recover after years of turmoil caused by rising interest rates and volatile occupancy rates in the wake of the pandemic.
Bryant said Deepke's research shows energy-related headaches are likely to grow for property owners, with half of managers surveyed saying an additional 20 to 40 percent of their property portfolios are at risk of becoming stranded assets over the next three years.
Asset managers whose properties don't meet the new environmental standards face a growing risk of having to sell at a loss, according to data collected by Deepki, which operates in 65 countries and serves a wide range of clients including pension funds, insurers, asset managers and banks.
“Every day we see examples of clients who are faced with additional discounts when selling their assets,” Bryant says, “due to the fact that the building is stranded, combined with other issues such as availability, modernity and the location of the building.”
