Green Infrastructure

Energy Performance and Multifamily Housing Asset Value

May 3, 2024 8:20 AM ET
A row of lights hanging from a ceiling
Exterior of residential buildings. "16% Target reduction in energy consumption..."

CBRE

Overview

The European Union (EU) has set a strategic agenda to tackle climate change. To improve the energy performance of buildings, the EU has established a legislative framework that includes the Energy Performance of Buildings Directive and the Energy Efficiency Directive. These aim to help achieve an energy efficient and decarbonised building stock by 2050, supported by the gradual introduction of Minimum Energy Performance Standards (MEPS).

CBRE has conducted an analysis to understand how energy efficiency upgrades in multifamily housing (MFH) can impact the market value of an asset.

Key findings

  1. Although asset-stranding is not a new phenomenon in the real estate industry, the scale of stranding emanating from MEPS-related transition risk could be quite substantial.
  2. In the case of buildings used as collateral, the transition risk related to MEPS could have serious implications for the financial industry. With financial institutions implementing strategy to reduce their financed portfolio's carbon footprint, they will become increasingly selective when agreeing refinancing for assets that need upgrading.
  3. Compression of cap rates for the best performing stock will increasingly become visible across the region. This is already recognised in several European countries, including The Netherlands and Germany.
  4. The ability to demonstrate that energy efficiency is capitalised into rents is the first important step for property owners and investors to have a financial incentive for upgrading their assets.
  5. The results of our analysis confirmed that energy efficiency features, as measured by the EPC rating, have an impact on MFH rental levels. However, the rental price differences and associated benefits need to be compared with the costs of energy retrofits, as the premium needs to be high enough to compensate for the retrofit.
  6. Our analysis in the Danish market has shown that it is difficult to build a business case around moving a MFH asset’s energy profile from EPC B to EPC A. On the other hand, moving a building from EPC C to EPC B results in 9% asset value uplift.
  • 56% Of European residential stock has an EPC rating lower than D
  • 9% Asset value increase when upgrading a building from EPC rating of C to B

Get in touch with our team for the complete report and discover how you can enhance the value of your assets with energy efficiency initiatives.