Our Thoughts
Tue, 04/06/2024 - 12:00
· 2 min read

Decarbonisation and its Impact on Asset Value

Regulation is driving decarbonisation and restrictions on the leasing of non-domestic property. Energy reduction obligations for tertiary assets present a challenge for the real estate sector.

39% of global direct and indirect greenhouse gas emissions are linked to real estate1
91% of greenhouse gas emissions must be reduced to comply with the Paris Agreement by 20502
0.01% of buildings can be considered carbon neutral to date3
75-90% of buildings that will exist in 2050 are already built today4

In 2023, the earth’s temperature was 1.48 degrees higher than the pre- industrial average and just 0.02 degrees away from the 2015 Paris Agreement objective to limit warming to 1.5 degrees. Real estate is one of the sectors that would be most affected by crossing the 1.5 degree threshold. Worldwide, property insurance premiums are set to rise by 22% by 2040, as weather-related disasters become both more intense and more frequent.5

Without adaptation, the "insurance gap" (insurable or uninsurable assets) is likely to increase more sharply, as is already the case in certain regions, for example in California.6 Moderate decarbonisation capital expenditure can maintain liquidity and asset value. A spend of £10 to £35 per sq m each year can ensure alignment with the 1.5 degree pathway.


Record Number of Days Above 1.5°C In 2023

Number of days with temperature increase above pre-industrial level (1850-1900) within the following ranges:

ESG Temperature Chart

Source: Global Climate Highlights 2023 | Copernicus

 

Decarbonisation Strategy

DECARBONISATION STRATEGY

Expected Benefits Of Asset Decarbonisation For All Stakeholders

  • Asset liquidity for resale
  • Rental increase opportunities for resilient assets
  • Reduced energy consumption and carbon emissions, leading to a positive environmental impact
  • Tenants satisfied with lower energy costs
  • Enabling tenants to hit their environmental targets and boost their reputation
  • Satisfied tenants more open to renting more space in the asset, accepting a rental increase or an increase in the lease term

copy image

 

Impact on Asset Value

We see a positive impact of sustainability certifications on acquisition prices, of up to 25% in the office market in London.
 

last graph Insight Source:
MSCI November 2022
London sustainability ratings are based on offices that have either BREEAM or LEED ratings

 

Read the next article, Powering the Future: Global Perspectives or discover more from our ESG in Perspective magazine. 

 

Sources:
1.Agence internationale de l’énergie, Tracking Buildings, 2020
2.CRREM, Report Stranding Risk & Carbon, 2019
3.IIGCC and the World Green Building Council, 2019
4.BPIE, 20175. Institut Swiss RE, More risk: the changing nature of P&C insurance opportunities to 2040, 2021
6.ABC News, Fire prone California homeowners left behind as insurance companies drop coverage, 2023
7.Dalton and Fuerst (2018), The ‘Green Value’ Proposition in Real Estate: A Meta-Analysis
8.Capturing the Value of Sustainability in European Logistics, CBRE (2022)
9.MSCI (2023), Has energy efficiency emerged as a driver of real estate returns?
10.CBRE (2023), The value of sustainable building features
11.Mangialardo et al (2018), Does sustainability affect real estate market values?
12. Feige et al (2013), Impact of sustainable office buildings on occupants’ comfort and productivity
13. An and Pivo (2020), The Effects of LEED and Energy Star Certification on Default Risk and Loan Terms

 

Decarbonisation and its Impact on Asset Value