Investors targeting ESG refurb opportunities

Investors are targeting European office assets with the potential for ESG upgrades, says Knight Frank.

The broker’s ESG Property Investor Survey found 58% of investors are actively seeking to acquire commercial buildings which perform poorly on ESG metrics, in order to improve and upgrade them to meet future environmental standards.

In the first half of 2023, £2.5 billion of UK assets (13.4% of total real estate investment volumes) were purchased for the purpose of renovation or redevelopment.

Across all investors surveyed, 22% planned to divest poor-performing buildings, with 76% planning to repurpose or improve existing buildings. However, 40% of core investors plan to sell non-compliant assets. The survey found that 41% of investors were committed to their portfolios being net zero by 2030. 

Knight Frank's research also revealed an increased focus on social sustainability. It found 46% of investors aim to enhance public spaces through their assets, while 35% plan direct investments in local communities and 27% seek local employment opportunities.

Flora Harley, head of ESG Research at Knight Frank, said: “Investors increasingly recognise the potential to create value by bringing older office assets into line with future regulatory requirements.

“A higher interest rate environment and lower valuations are making under-performing assets more attractive to core plus and value-add investors, while the ‘green premium’ for the best performing assets continues to rise, as demand far outstrips supply.”