European commercial real estate sector faces the time bomb of stranded assets

• 94% of respondents are exposed to high financial risk related to stranded assets
• More than half of those surveyed admit that 30% or more of their assets are stranded
• The distribution and industrial sectors are particularly affected by this risk

Financial pressure on energy underperforming assets looks set to increase, with half of respondents saying 20-40% of their real estate assets are at risk of becoming stranded assets over the next three years. years, and 40% of them estimate that this same risk affects 40-70% of their portfolio.

The vast majority (94%) of those questioned consider the financial risk facing their organization to be high in terms of brown discounting and the attractiveness of assets, leading to an extension of the vacancy periods of buildings and , ultimately, to a loss of income.

The result is that the majority of asset managers in the commercial real estate sector and owners interviewed agree that it is a priority for the management team to reduce, moderate or limit the financial risk of these assets, 15% of between them considering this priority extremely high, 59% considering it high and 26% considering it medium.

The sectors most exposed to “stranded assets” risk are distribution (according to 29% of those surveyed), followed by the industrial sector (26%), offices (13%), healthcare (10%) and residential ( 9%).

For Vincent Bryant, CEO and Co-founder of Deepki: “Stranded assets are a ticking time bomb for the European commercial real estate sector, with much more demanding energy regulations and commitments to fast-approaching carbon neutrality targets. The lack of a clear net zero trajectory — or commitment to implementing such a trajectory — not only poses a barrier to access to capital, but also affects the value of real estate assets. Our study shows that many owners and institutional investors have implemented a strategy aimed at remedying this problem, but that the success of this approach depends on the reliability of the data, KPIs and reporting available to them. This is why Deepki has had the quality of its ESG data collection process certified under the ISAE 3000 standard.”

Notes

Study conducted by Pureprofile in January 2024 among 253 executive/decision-maker level people working for pension funds, asset managers with insurance companies, banks and institutional investors in the United Kingdom, France, Germany, Spain and Italy (at least 50 respondents per market) heavily involved in the management of a commercial real estate portfolio or a real estate investment fund/portfolio.