Asset managers fear high risk of stranded assets

Almost every real estate asset manager in a survey of 250 senior European players in the sector said they face a high level of financial risk from stranded assets. The survey by ESG data intelligence firm Deepki found that 94% cited that the level of financial risk faced by organisations was high in terms of brown discounting and asset attractiveness. The level of financial risk faced by organisations 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. More than 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 asset mangers who took part in the research are from institutions in the UK, Germany, France, Spain and Italy, with a combined AUM of €226.3bn (£191bn). The financial pressure posed by underperforming assets looks set to continue, Deepki said, 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 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%). Vincent Bryant, chief executive and co-founder of Deepki, said: “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.”