German asset owners continue to face significant challenges in the ESG transformation of their own real estate portfolios.
That’s according to the "UI Real Estate Investment Insights" survey by Germany’s Universal Investment.
The company has found that about a third of respondents have not yet determined the ESG performance of their portfolios. For around 50%, Article 8 funds as classified under SFDR, represent the preferred ESG standard for companies, deemed much more important than Article 9 funds.
The survey included banks, pension funds, public-law institutions, and other companies in Germany, managing a total of €13.5 bn in real estate assets.
Traditional energy certificates (35%) and GRESB (24%) were named as the preferred methods for evaluating the ESG performance of real estate portfolios. When asked about collaborating with external ESG consultants, 62% of respondents were not in favour. The survey shows that the status under Article 8 of SFDR (48%) is seen as the most important ESG standard, followed by the EU Taxonomy (44%) and the PRI (32%). In contrast, only 12% regard the impact status as per Article 9 of the SFDR as significant for the future.
Axel Vespermann, head of real estate, said: ‘The starting point for a successful transformation of existing property holdings is a comprehensive assessment of ESG performance. Despite years of public debate around analysis, data collecting and the addition of smart metres, a significant need for action remains.’
For 95% of respondents, reducing energy and electricity consumption is a priority, followed by the installation of photovoltaic systems (68%) and heating system optimisation (68%). Nearly 45% reported installing photovoltaic systems on their properties for self-use, while 35% plan to lease installed systems to third parties. Over 59% install these systems to enhance property value, with about 14% are aiming for cash flow return optimisation.
Vespermann noted: ‘The amendment of the Renewable Energy Act in 2023 eliminated the technical requirement that new systems operational after January 1, 2023, can only feed a maximum of 70% of the photovoltaic nominal output into the public grid. The political commitment to expanding a decentralised, emission-free energy supply thus matches the willingness of asset owners to enhance their photovoltaic infrastructure.’
Co-ownership structures
The company also said the rapid change in interest rates had led to a decline in new property, prompting asset owners in Germany to shift their focus toward optimising existing portfolios, with an added emphasis on ESG aspects.
This shift has brought attention to an alternative investment option: the co-ownership fund. This type of fund enables investors to retain ownership rights while incorporating their direct real estate holdings into an open fund structure.
Currently, nearly one in five respondents are fundamentally willing to include a property from their portfolio in such a fund structure. The primary objectives include balance sheet optimisation (33%) and enhancing property performance through reduced internal costs and access to specialised asset managers (24%). Approximately 19% of respondents anticipate that a co-ownership fund will lead to more efficient portfolio management.
