Private and institutional investors are actively seeking UK and European offices that score poorly on environmental grounds in order to increase their value through sustainability improvements, research shows.
According to Knight Frank’s ESG Property Investor Survey, 58% of investors plan to acquire older office assets that require sustainability improvements to meet future environmental standards.
Among the surveyed investors, only 22% aim to sell poor-performing properties, while 76% plan to enhance or improve their current buildings. However, 40% of ‘core’ investors do intend to divest properties with poor environmental performance.
In London, 52% of all office investment in H1 2023 – which amounted to £2.1 billion – was for value-add acquisitions and despite increased development costs, these kinds of transactions have increased post-pandemic, according to Knight Frank.
In H1 2023, £2.5 billion worth of assets were acquired across the UK for renovation or redevelopment, with the offices sector accounting for 24% (£1.2 billion) of this amount.
Around 41% of firms aim for net-zero portfolios by 2030, intensifying the ‘green premium’ for top-tier core assets, as demand for high-performing environmentally-friendly buildings surpasses supply.
Flora Harley, head of ESG research at Knight Frank, said: “The 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, led by firms which are targeting net zero portfolios by 2030.”
© 2023 funds europe
