An increasing number of value-add investment opportunities will emerge in 2022, as decarbonising buildings and ESG-requirements create redevelopment opportunities across Europe, according to broker Savills.
The international real estate advisor said that the risk of stranded assets was rising because occupiers were demanding buildings with high environmental credentials and that this would be an opportunity for investors prepared to undertake retrofitting and refurbishment.
In its European Themes 2022 report, Savills said that regulations and planning policies will force a shift in focus from new office development to renovation to avoid the embodied carbon emissions associated with construction.
Meanwhile, the real estate industry will be looking to measure the carbon footprint of assets to identify underperforming buildings and improve energy performance as it makes net zero “a priority”.
Savills said that these trends would bring value-add opportunities with good rental uplift potential, identifying top investment picks in this category to include well-located offices in German cities, Amsterdam, Paris, London and Stockholm.
By the end of 2021, secondary yields had already moved out in the UK and the Netherlands, where environmental regulations are being introduced. At the year end, the yield gap between prime and secondary office assets closed at 77bps. Historically, the interest of value-add investors rises once the yield gap is above 90bps.
Savills expects the widening gap to feature across Europe, where one area of opportunity will be the need to improve the performance of operational real estate.
Life science facilities in research and development hubs; student housing in large university cities with low supply of professionally managed student accommodation; care homes and hospitals; data centres; prime retail parks and hospitality in established tourist destinations were also among Savills’ top value-add investment picks.
