CRE Assets Without ESG Upgrades Risk 'Becoming Obsolete'
Many markets are beginning to see potential price discounts due to poor ESG performance.
As ESG continues to be a top priority for both investors, occupiers and end users alike, poor-performing assets may experience price discounts, CBRE experts predict.
The firm’s 2021 Global Investor Intentions Survey shows that investors intend to deploy even more capital this year—potentially 15% to 20% more than last year—as the global economy continues to recover from COVID-19 woes. And as those investors, together with consumers and tenants, sharpen their collective focus on ESG initiatives, “real estate assets that are not upgraded accordingly run the risk of becoming obsolete,” the report notes.
Property management in particular will be critical to both foster tenant engagement and reduce daily carbon emissions, according to CBRE—particularly since many countries have committed to reaching carbon neutrality by 2050. More than half of investors (led largely by EMEA-based real estate funds, pension funds, and investment managers) surveyed by CBRE say they’re adopting ESG criteria for prospective investments.
“Owners will increasingly be expected to provide granular data on ESG aspects of building performance—such as indoor air quality, power consumption, water usage and waste management—to help tenants identify opportunities that drive sustainable performance,” the report states.
“The fact that buildings with strong ESG performance tend to be newer high-grade assets, which are already highly valued, means the sustainability premium is hard to pinpoint. However, many markets are beginning to see potential price discounts due to poor ESG performance, including energy inefficiencies and climate risk exposure, such as flooding, drought and heat stress.”
CBRE notes that while some ESG measures—like renewable energy generation and recycled water systems—require a big upfront investment, that’s not the case for all initiatives. Those targeting human behavior and waste management can create a big impact on emission reductions at a relatively low cost, the report notes.