Commercial property values affected by poor ESG performance

More than six in 10 investors in the commercial property sector have seen poor ESG performance cause a decline in portfolio values.

A report says that 66 per cent of investors suffered a decrease in both capital and rental values.

Environmental, Social, and (Corporate) Governance (ESG) covers areas of interest for socially responsible investors who have an increasing focus on sustainability.

The report highlights that the decline in ESG performance will continue if owners do not urgently make the transition to net zero carbon emissions.

Importance of sustainability

The study was conducted by data-gathering firm Deepki, which shows that over three-quarters of the respondents predict income to depreciate by over 20 per cent if their ESG performance does not improve.

Twelve per cent of those questioned said that between five and 10 per cent of their portfolio has poor energy efficiency or a high carbon footprint.

A further 63 per cent said that this was the case for 10 and 20 per cent of their assets.

The vast majority said they would be undertaking action to remedy the situation, with another recent survey showing that landlords were turning to refurbishment or retrofitting older property, rather than demolition and new construction.

How poor ESG performance can be addressed

The research also asked what actions respondents would take and included:

  • Nearly three quarters (72 per cent) said that they would engage with property management teams to make improvements
  • Investment in energy efficiency would be undertaken by 61 per cent
  • 45 per cent said they would work with a third party to develop an ESG strategy and measure performance
  • Just 28 per cent said they would demolish and rebuild failing assets
  • 10 per cent said they would sell their assets

Katie Whipp, Head of Deepki UK, said: “ESG performance is now fundamental to the financial performance of assets within the UK commercial real estate sector, affecting both capital value and rental income.

“Real estate investors and owners recognise that they will see the value of their assets decline if they do not make the transition to net zero. However, this path is often complex and requires data intelligence, analysis and the expertise to take the appropriate action.”

Founded in 2014, Deepki uses data intelligence to guide real estate players in their net-zero transition.

To get advice on commercial property matters, please contact our expert team today.

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