Over half (57 per cent) of European pension fund managers have said that between 10-30 per cent of their commercial real estate portfolios are characterised by poor energy performance, according to new research from re:sustain.

The survey included 80 European pension fund managers that invest in commercial real estate in the UK, Germany, France, Netherlands, Spain and Italy, with a combined €86bn in assets under management.

Around a third (31 per cent) said between 30-50 per cent of their portfolio was performing above expected benchmarks and 8 per cent said that more than 50 per cent of assets in their portfolio are poor performers.

According to re:sustain, this poor energy performance results in pension funds having ‘stranded assets’ in their portfolio – properties experiencing reduced capital value, leasing or future liquidity.

More than half of respondents (54 per cent) have seen their stranded assets decrease in value by 20-30 per cent over the past three years and a further 25 per cent said they had seen values decline by 30-40 per cent.

Furthermore, over the next five years, 25 per cent expected to see the number of stranded assets to increase by 5-10 per cent, while 46 per cent predicted an increase of between 10 per cent and 25 per cent.

However, the majority (92 per cent) of those surveyed have plans in place to improve the energy efficiency of their real estate portfolio, with 84 per cent targeting energy consumption reductions of between 10 per cent and 30 per cent across their portfolios over the next three years.

Commenting on the research, re:sustain chief business officer, Katie Whipp, said: “Our research highlights that the impact of poor energy performance on real estate assets is no longer a future risk – it is already being priced into asset values.

“The findings show that a material share of portfolios are underperforming on energy, which is already translating into value erosion. For pension funds in particular, this creates a direct challenge to long-term income security and maintaining asset quality over extended holding periods."

She added that the data highlighted that the constraint is not a lack of intent, but the “complexity of delivering change in live, multi-tenant environments without disrupting income streams”.

“As a result, we are seeing a shift toward technology-enabled solutions that can improve performance quickly, with minimal operational impact – with the ability to optimise assets in use becoming critical to protecting long-term value and ensuring portfolios remain fit for the future,” she stated.

Indeed, the survey found that 65 per cent of respondents cited getting tenant buy-in for improvements in the building’s energy consumption as a barrier for making improvements.

A third (33 per cent) said the greatest challenge is keeping business disruption to a minimum for occupiers and 33 per cent also cited coordinating upgrades in multi-tenant buildings.

Three quarters (75 per cent) of respondents said that business disruption to their tenants or occupiers is such a significant barrier that it has become a reason not to proceed with building upgrades and improvements.

When asked about the plans they have to tackle energy efficiency across their real estate assets, 73 per cent of respondents said that technology which can optimise a building's systems to reduce energy usage remotely will have the greatest impact, ahead of investment in new building management systems (57 per cent) and new lighting and HVAC systems (54 per cent).

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