German asset owners fear stranded assets
German investment managers are worried about the risk of "stranded assets", which do not conform to ESG regulations.
A survey carried out for consultants Aurepa Advisors AG and PwC Deutschland found that 65% of respondents saw a significant risk that older buildings in a portfolio will fall into energy efficiency category F or worse (EU energy performance ratings for buildings rank from A to G). According to 38% of respondents, non-ESG-compliant properties are already more difficult to finance.
Hannes Eckstein, founding partner of the Aurelius real estate group and board member of Aurepa, said: “Many properties are in danger of becoming stranded assets because of a lack of an appropriate asset management strategy.
“However, a large proportion of older buildings across all asset classes can be transformed into energy efficient properties. Every property must be looked at individually to establish which refurbishment projects will contribute to their long-term value enhancement.”
The survey found that 57% of respondents believe the greatest pressure to make properties ESG-compliant comes from regulatory requirements. Meanwhile 36% said pressure came from mainly from within their own company, while only 7% reported pressure from investors.
More than a quarter of asset managers surveyed have portfolios where at least half the assets are non-ESG-compliant properties (see chart above).
There are different strategies for dealing with these properties; 46% said they would refurbish, 25% would sell and 13% demolish and redevelop.
Meanwhile, only 57% of respondents have agreed green leases with their tenants. Thorsten Schnieders, partner at PwC Deutschland, said: “It is not only asset management activities which are essential for the leverage of value creation potential. The occupiers must also take responsibility for conserving energy. Green leases are an effective tool for this but are unfortunately still something of a rarity.”
The anonymous online survey covered managers with aggregate of assets under management of €100 billion.