There is a growing valuation gap between property assets with strong sustainability credentials and those burdened by a discount for being “non-sustainable” . The current energy crisis will cause the gap to widen further, according to Bouwinvest Real Estate Investors, owing to the increasing focus on the ESG characteristics of investments.
Nevertheless the firm, which made the prediction in its Dutch market Outlook 2023-2025 report, said that despite the deteriorating economic backdrop there are pockets of investment opportunity and more resilience in the values of properties with the highest sustainability standards.
This is particularly the case in sectors where occupancy demand is lagging such as retail and offices, as well as in areas where market fundamentals are stronger like residential, healthcare and hotels, the report concludes.
“A growing body of evidence shows it pays to be green over the long term, both on the financial front as well as in terms of environmental, social and governance (ESG) returns,” the firm’s head of research and strategic advisory Jeroen Beimer said:
“A consensus is emerging that sustainable buildings command higher rents and values and provide more stable long-term financial returns. Impact investing is also gaining ground by prioritising sustainability in both a social and environmental sense, alongside financial returns.”
From 1 January 2023, all offices in the Netherlands – excluding listed buildings – will be required to have a minimum C-rating for energy efficiency. Owners of offices that do not possess a C certificate or higher (A or B) will not, in principle, be allowed to lease their space from that date.
A recent study by CBRE indicated that some 10% of all Dutch office stock had a D-rating or worse, while the energy performance of around 26% of total supply was not even known.
High street retail was starting to recover from the pandemic, but pressure on the sector is building again as consumers retreat in the face of the cost-of-living crisis, with the short-term outlook now significantly less positive. Convenience retail for daily groceries is faring better and the performance gap between ‘experience’ and ‘convenience’ retail will widen as market conditions sour. Repurposing of obsolete stores is underway, but more transformations in function are needed to keep vacancy levels in check.