Stranded asset risk is ‘the €1.5 trillion elephant in the room’

The real estate sector doesn’t fully comprehend the risk of stranded assets, delegates heard at Real Asset Media’s ESG- Breaking new ground. Maximising development & re-development opportunities briefing, which was held recently at PwC’s offices in Frankfurt.

Anna Tsartsari, Co-founder, Head of ESG & Sustainability, BE Design

“It’s the €1.5 trillion elephant in the room,” said Anna Tsartsari, co-founder, head of ESG and sustainability, BE Design. “This is the estimated cost of the investment required to decarbonise buildings over the next 30 years if we want to reach net zero.”

The goal is 2050 but 80% of the building stock that will stand in that year is already there and at present 97% of existing buildings do not meet decarbonisation requirements. In the European Union, only 0.2% of assets every year are refurbished to the 60% energy reduction level required.

“Although the focus has been primarily on designing new sustainable assets, targeting all new buildings to be net zero by 2030, our existing assets are by far the biggest challenge,” said Tsartsari.

There is a huge amount of work to be done. Just to give an example, solar panels have been installed on the roofs of only 5% of warehouses.

Two case studies done by BE Design underline the complexity of the problem but also highlight the possible solutions.

The first focuses on the UK. In order to meet the UK’s target of Net Zero Carbon by 2050, the built environment must comply with a prescribed energy and decarbonisation reduction pathway. Failure to comply may result in the risk of stranded assets.

BE Design used the CRREM decarbonisation target tool, that allows the assessment of country and building type-specific greenhouse gas intensity and energy reduction pathways.

“We physically surveyed an early 1990s gas-heated commercial building which has been stranded since 2018,” said Tsartsari. “We collected all the data and tried to find retrofitting ideas to improve it, such as adding insulation, air source heat pumps, PVs and LED lights, which make a huge difference. Our work gave the asset an extra 20 years of life, but it will be stranded by 2042.”

The cost of upgrading the 26,000 sq m industrial asset was €346 per sq m, for a total cost of €9.5 million. Contrast this with the second case study, focused on a new distribution warehouse in Germany which actually generates more energy than it needs. The solar panels are producing a surplus of 33kWh/sqm.

The warehouse is already in line with the 1.5 °C target. “This shows the advantage of having a future-proof new building,” said Tsartsari.

The new German climate targets require an almost complete reversal of Germany’s primary energy consumption, 80% of which is still based on fossil fuels. Climate neutrality by 2045 means that nothing other than that the use of diesel, coal and natural gas must be ended by then. As an interim target, emissions in Germany are to be reduced by around 65% by 2030 compared to 1990.

“The fact is that by 2030 all buildings must be net zero, which means that by 2025 buildings must be designed to be net zero,” said Tsartsari. “We must start the decarbonisation of existing assets now because there is a lot of work that needs to be done.”

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