Investment in European sustainable funds to hit €850m in 2016 - Catella

Investment in European sustainable real estate funds is expected to almost double in 18 months as the industry responds to demand for energy-efficient buildings, according to research by Catella.

The advisory firm’s Market Tracker for September noted that sustainably designed and managed real estate funds achieved just €495 mln of investment in 2014, despite the total sustainable sector in Europe being worth €5.2 tn.

“We anticipate a volume in Europe of some €850 mln by mid-2016 finding its way into newly-designed sustainable real estate funds,’ said Thomas Bayerle, head of group research at Catella. ‘A key factor is that many existing properties have potential for optimisation, and a large part of the portfolio properties are in exposed locations.’

Investment has been held back by a lack of new-build developments and a weak regulatory structure, said Bayerle. But with institutional investors on the look-out for sustainable funds and the conversion of existing buildings to energy-efficient assets established as a billion-dollar industry, pressure on the demand side will increase.

Bayerle said the number of new builds in Europe had been almost ‘granular’, while questions remained about why more existing stock was not being refurbished. ‘Another problem is a lack of uniform standards in building assessment and certification; there is neither a universal seal of approval for sustainable real estate funds nor a benchmark for peer-group comparisons, which are absolute prerequisites to kindle the competition.’

He went on: ‘It will be crucial for funds relying on sustainability to structure their investments well, especially because not all sustainable investments can provide returns in the short term. In addition, there is the risk of over-investment in sustainability from regulatory policy incentives, such as for solar, the latest to join the segment.’