Commercial Real Estate Without Net-Zero Strategies Will Depreciate Over Next Five Years

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22 September 2021

Data shows that high-emission commercial real estate is set to depreciate in value over the next five years.

Real estate stock exchange IPSX and sustainability data and consulting firm Carbon Intelligence have prepared a joint report on net-zero initiatives for UK commercial property market valuations.

Commercial property without plans to slash carbon emissions will soon plummet in value, is their conclusion.

The findings factor in UK government commitments to a 78 per cent reduction in greenhouse-gas emissions by 2035 and increasingly stringent energy-efficiency standards.

"By not investing CAPEX (Capital Expenditure) now into a long-term net-zero strategy, not only will you (building owners) miss out on the short-term advantages associated with a building that drives high tenant demand, due to minimal energy costs, prestige, and ESG credentials, but you will also have to invest the same or more to deal with obsolescence as a result of non-compliance, voids, and capital deprecation of the building," said Carbon Intelligence's Real Estate Commercial Director Oliver Light.

Energy Inefficient Buildings Also at Risk

Commercial buildings that don't meet future legal minimum energy standards are also at risk, according to Colliers.

Minimum Energy Efficiency Standards (MEES) for commercial properties will be expanded in 2023, meaning that buildings with an EPC rating lower than E will not be able to be leased. According to Colliers, a tenth of London's offices fall short of this standard and will require heavy investment.

Retrofitting existing buildings to make them more sustainable could cost developers about £200 per square foot compared with £300 per foot to build from scratch, potentially resulting in offices being demolished and rebuilt, causing carbon-emitting repercussions. 

97% of European Commercial Real Estate Not Able to Support a Net-Zero Transition

Separate research from investment management services provider Fidelity International found that 97 per cent of commercial real estate in Europe cannot currently support a net-zero transition.

"Today's liquidity conditions mean valuations do not yet reflect the stark difference between buildings that are ready to support the low-carbon transition and those that are not," says the Fidelity report.

"That won't last forever, and owners who delay investment in retrofitting could come to regret it."

 Picture: a picture of an open plan office area showing three people working at a desk in the centre

Article written by Ella Tansley | Published 22 September 2021

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