To maintain portfolios the UK commercial property sector must rapidly align with sustainability targets and regulations. As a property owner, operator, landlord or investor, understanding and managing climate risk is critical to asset value, and this is where CRREM (Carbon Risk Real Estate Monitor) can help. This guide looks at CRREM, stranded assets, the financial benefits, case studies and how to get started.
What is CRREM Analysis?
CRREM Analysis allows property owners to benchmark their portfolios against decarbonisation pathways and identify assets that will become ‘stranded’ due to future climate regulations. This tool lets you measure your properties’ carbon exposure and get actionable insights for long-term Net Zero plans.
According to a JLL report, sustainable buildings can command a rental premium of 11.6%. CRREM Analysis helps you prepare for this and avoid financial risks and stranded assets.
What are Stranded Assets?
In real estate terms, “stranded assets” are properties that lose value, become obsolete or fail to meet regulatory standards due to changes in market conditions, environmental factors or policy changes. For commercial property owners, when a building’s carbon footprint is too high to comply with future regulations, it becomes difficult to let, sell, or refinance.
Why are Stranded Assets a Growing Problem?
With global climate policies becoming more challenging, the risk of owning or investing in stranded assets has increased significantly. The UK Government’s commitment to Net Zero by 2050 and stricter EPC (Energy Performance Certificate) regulations are changing the property market. By 2027, commercial properties will need to have at least an EPC rating of ‘C’ and, by 2030, a minimum ‘B’ rating. Properties that don’t meet these standards will be penalised, have lower market values, or become legally unlettable.
The Financial Impact of Stranded Assets
1. Devaluation and Loss of Income
Properties that can’t meet future regulatory standards will sharply decline in value. According to a Carbon Tracker report, real estate portfolios could see up to 30% devaluation if not aligned with decarbonisation pathways. Stranded assets will need help to attract tenants, resulting in higher vacancy rates and loss of rental income.
2. Higher Running Costs
Properties with old energy systems or inefficient design have higher operational and maintenance costs. With energy prices fluctuating and carbon taxes rising, owners of inefficient buildings will see their costs escalate. CRREM Analysis shows where upgrades can reduce energy consumption, help lower costs, and avoid stranded assets.
3. Financing and Investment Barriers
Investors and tenants increasingly consider ESG (Environmental, Social and Governance) when making decisions. As a result, assets that don’t align with sustainability goals will find it harder to get finance. The International Energy Agency has suggested that banks and investment funds are tightening their lending criteria and favouring properties that are energy efficient and meet Net Zero targets
How CRREM Analysis can help you avoid stranded assets
By assessing your portfolio against decarbonisation pathways, CRREM Analysis will show you which properties are at risk of becoming stranded. The benefits include:
Risk Reduction
Properties that don’t meet future decarbonisation targets will see significant devaluation. A CRREM report(https://www.crrem.org) found that assets that don’t improve energy performance could decrease value by 10-30% in the next decade. CRREM Analysis can identify the risks so you can act now and protect your investment.
Cost Savings
Energy-efficient upgrades can save in the long run. According to the Carbon Trust, businesses that implement energy-saving measures can reduce their energy bills by up to 20%. CRREM Analysis shows where to focus to get the most significant financial and environmental benefits.
Increased Asset Value
Sustainable properties are more attractive to tenants and investors. Branding your portfolio as low-carbon and future-proof increases its appeal and potentially increases occupancy rates and rental income.
Climate Risk Management
CRREM Analysis must be integrated with other carbon management tools like Net Zero Carbon Portals as regulations tighten. Property owners must adapt to stay competitive with the UK government’s Net Zero by 2050 target. According to PWC 77% of institutional investors will only invest in companies with clear ESG strategies. CRREM Analysis can help property owners build an ESG foundation.
How to start with CRREM Analysis
CRREM Analysis can seem overwhelming, but it becomes a powerful tool for future-proofing property investments with the right approach. By following a process, you can get valuable insights into your portfolio’s carbon performance and take strategic steps to align it with decarbonisation pathways. Here’s how to get started:
- Start by assessing the current carbon performance of your portfolio.
- Collect data on energy use, building materials and other factors that affect carbon output.
- Use CRREM methodologies to compare your portfolio to decarbonisation pathways and identify at-risk assets.
- Create a plan to upgrade and retrofit the properties to comply and be efficient.
- Talk to an organisation like Lynx Energy and Carbon Assessor for expert advice and an accurate and comprehensive CRREM Analysis.
Stranded assets are a financial and operational risk for property owners, landlords and investors. With regulations tightening and market expectations shifting, the need for a simple and proactive approach to climate risk has never been greater. CRREM Analysis is the strategic solution to assess, plan and improve the sustainability of your portfolio so your properties remain compliant, valuable and competitive.
Lynx Energy and Carbon Assessors provide many robust solutions, including CRREM Analysis, to enhance and mobilise your ESG strategies. Contact us today to understand how we can help you.
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