Real estate not accounting for decarbonisation risks, says ULI

The Urban Land Institute claims real estate is overvalued, because asset owners are not taking proper account of risks around decarbonisation.

Speaking at ULI Europe’s climate change summit in Rotterdam this week, European CEO Lisette van Doorn said current building values were “too high” and claimed there was a “carbon bubble” in real estate pricing.

Her speech came as ULI Europe released its transition risk assessment guidelines for consultation. They were developed through the real estate body’s C Change programme, formed last year with real estate players Allianz Real Estate, Arup, Catella, Hines, Immobel, Redevco and Schroders Capital and aim to provide the industry with a common methodology on transition risks.

The consultation paper said: “At present, transition risks, such as additional resourcing needs and the cost of decarbonisation, are known to be impacting the value of property - but without a standardised method by which to assess it, there is risk of disinvesting of carbon-heavy portfolios or assets from informed investors, to less sophisticated purchasers.”

The guidelines identify 14 transition risks, nine of which are considered to be of material impact to real estate assets now and in the future. Risks include the cost of decarbonisation, energy costs and changes in rental income. The guidelines also include three standard templates to support disclosure and reporting.

“We put forward these proposed guidelines to advance the technical approach to assessing transition risks. However, we believe there are strong social and economic implications for our industry and cities if we don’t tackle this critical challenge of transition risk collaboratively as an industry,” ULI Europe said.

The guidelines can be found here.