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From compliance to opportunity: Transformative strategies for value creation

The challenges of evolving regulatory frameworks present an opportunity to create value through proactive real estate portfolio management - potentially generating alpha in the process. The push towards a sustainable building stock is not just a compliance exercise, but a strategic opportunity to redefine real estate portfolio management.

An intensified commitment to sustainability in Europe, driven mainly by the Paris climate agreement and EU taxonomy, has put the real estate industry under pressure to implement significant transformation. The recently revised Energy Performance of Buildings Directive (EPBD) and the Energy Efficiency Directive (EED) envisage a highly energy efficient and decarbonised building stock (a defacto zero-emission building stock) by 2050, and at least a 55% reduction in greenhouse gas emissions (compared to 1990) by 2030 (source). In response to these directives, the European Union has set a target of renovating 25% of the most energy-inefficient properties within its member states by 2033. Additionally, starting from 2030, all new builds must meet strict emission-free criteria with regard to both the manufacture and disposal of construction materials. Furthermore, the EU plans to phase out the use of fossil fuel-based heating by 2040 (source).

The regulatory framework in Switzerland is less developed, but the country has made a strong commitment to climate goals by adopting the Federal Council’s long-term climate strategy (2021) and passing the "Climate and Innovation Act" (2023), which established a net-zero target. Given the significant contribution of the real estate and construction sector to primary energy consumption (36%) and greenhouse gas emissions (37%), the sector has rightly been put under the spotlight by civil society and political decision-makers as they seek to reduce global carbon emissions and achieve the Paris Agreement’s 1.5-degree target by 2050. Decarbonisation must therefore be prioritised in the development, construction, and management of real estate.

This evolving regulatory framework is particularly critical for asset managers and banks, because properties that fail to meet new standards increasingly risk becoming 'stranded assets' (reduced fungibility, style/risk shift). To prevent this happening, owners often have to allocate significant funds to renovation in order to meet new energy and social standards, and avoid “brown discounts”. We believe that ESG-conformity will soon be “the new normal”, meaning that assets that fail to meet a certain rating will be discounted - rather than those that fulfil ESG requirements attracting a premium. Taking the German office market as example, up to 69% (€ 303 bn) of all Top-7 office properties are at risk of becoming stranded, according to Colliers.

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Armin Hafner
Team leader Investment Management
+41584743571 armin.hafner@implenia.com Linkedin Download VCF-Card Business card

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