Nearly nine out of 10 real estate investors and managers now factor in the transition risks to a low carbon economy into their decision making, the latest survey from the Urban Land Institute (ULI) indicates.
The ULI C Change survey polled 225 decision-makers across Europe’s real estate sector and over 60% of investor and manager respondents said that transition risks were impacting acquisition decisions in 'nearly all' cases or 'often'.
In addition, the survey revealed that this has resulted in acquisitions not going ahead for 61% of respondents. Separately, 54% have allocated assets for disposal because of these risks.
Lisette van Doorn, CEO, ULI Europe, explained: 'We can see that transition risks have already become a significant factor in investment decision-making, adding a new layer of risk analysis to an already challenging market.'
In fact, the results show the business case for decarbonisation is clear, with 64% of respondents recognising the benefits of incorporating transition risks to ‘meet future demands of investors,’ while meeting the ‘future demands of occupiers comes third’ in the rankings at 46%. The ‘reality of regulation’ is also on the minds of respondents with 5% now focusing on transition risks.
62% of investor and manager respondents have already completed one or more acquisitions at a lower price due to a transition risk assessment. For those respondents where the transaction went ahead, the price was negotiated down due to the higher levels of capital expenditure required and a need for the asset to align with the buyer’s decarbonisation strategy.
On reviewing an existing portfolio strategy, more than 65% of respondents indicated that transition risk analysis led to increased capital expenditure allocation while 44% indicated this led to allocating assets for disposal.
Again, pricing was a factor with the sale being achieved at a discounted price for 46% of respondents. However, for 38% of respondents pricing was not affected, implying an information gap with not yet all buyer due diligence including transition risk analysis.
Lisette van Doorn suggested: 'Industry headwinds from high interest rates and inflation have driven the investment market in Europe into a period of quasi stagnation. With a lack of transactions, there is a lack of clarity on how much is currently being done within the industry to incorporate transition risks into decision-making. The results of our survey indicate that many in the industry are using this time to get their houses in order, preparing for renewed market activity.'
She added: 'It would be advisable for the rest to also be prepared for a different market when transaction activity picks up again - this is our call to action.'
