Asset manager AEW has warned that the costs of European real estate decarbonisation will be higher than previously calculated, but that it will still be economically viable for investors to reach 2050 targets.
In its updated research report on climate-related risk in the European real estate sector, released today, AEW predicts that the costs of hitting Paris Agreement targets will be almost 30% higher than it believed they would be a year ago.
However, AEW also expects an annual return of 8.8% across all European prime sectors for the 2024-28 period, so it believes targets are still achievable.
The company also warns that the current energy intensity of European buildings is 31% behind the schedule laid out through the Paris Agreement, although the UK and French markets are ahead of the European average.
According to the report, the average required investment in retrofits needed for decarbonisation is €14 (£11.70) per sq m per annum. This figure rises to €17 and €18 respectively for logistics premises and shopping centres, while residential properties have the lowest figure of €10 per sq m per annum.
Hans Vrensen, head of research and strategy for Europe at AEW, said: “Investors should still be able to achieve attractive risk-adjusted returns in European real estate. The latest data shows that the industry might be behind schedule on meeting the targets. However, even if investors need to catch up and meet more challenging decarbonisation capex targets going forward, they remain achievable.”
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