European commercial real estate faces stranded asset time bomb, according to new research by Deepki

New research by Deepki, the market-leading ESG data intelligence firm, which surveyed over 250 senior European commercial real estate asset managers from institutions in the UK, Germany, France, Spain and Italy, with a combined AUM of €226.3 billion, reveals that the financial threat managers face from holding commercial real estate that fails to make the energy efficiency grade is all too real. Almost all survey respondents (94%) cited that the level of financial risk faced by organizations was high in terms of brown discounting and asset attractiveness. The level of financial risk faced by organizations was high either in terms of reduced asset value, or from difficulty finding tenants willing to rent properties with sub-standard ESG credentials, which creates longer void periods and vacant buildings.

If the world is to meet its net zero emissions targets by 2050, the real estate sector must take urgent and decisive action to bring about significant change. Over half of respondents claim that over 30% of their assets are currently stranded. These are buildings that have lost their value due to poor energy performance.

The financial pressure posed by underperforming assets looks set to continue, with half of respondents saying that a further 20-40% of their real estate portfolios are at risk of becoming stranded assets in the next three years.

The majority of the commercial real estate asset managers and owners surveyed agreed that it was a management team priority to focus on reducing, mitigating, or limiting the financial risk of these buildings, with 15% describing it as an extremely high priority, 59% said it was quite a high priority and 26% said it was a medium priority.

The sectors facing the greatest risk of stranded assets are retail, according to 29% of respondents, followed by the industrial sector (26%), offices (13%), healthcare (10%) and residential (9%).

Commenting on the research findings, Vincent Bryant, CEO and co-founder of Deepki, says: “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. The lack of a clear net zero trajectory – or commitment to implement one – acts not only as a barrier to accessing capital, but also impacts property valuation. Our research shows that many asset owners and institutional investors do have a strategy in place to address the problem, but success is dependent on auditable and reliable data, KPIs and reporting. This is why Deepki decided to obtain the ISAE 3000 attestation, on top of its automated data collection capabilities, data quality check processes and algorithms, and PCAF-proofed AI-based estimations.”

Deepki is the first ESG SaaS provider for real estate to obtain an ISAE 3000 type 1 attestation to ensure audit-readiness. This gives assurance of all quality control processes, which are essential to support clients in providing reliable ESG indicators.