C Change Survey reveals 89%* of real estate decision makers now incorporate transition risk into their investment decisions

According to the latest survey from the Urban Land Institute (ULI), 89 per cent of real estate investors and managers now factor in the transition risks to a low carbon economy into their decision making, a firm indication that these risks are being taken seriously by a growing part of the market – and a call to action for the rest of the industry to adopt the same strategy.

The ULI C Change survey reached 225 decision makers across Europe’s real estate sector and over 60 per cent of investor and manager respondents said that transition risks were impacting acquisition decisions in “nearly all” cases or “often”.

In addition, the survey revealed that this has resulted in acquisitions not going ahead for 61 per cent of respondents. Separately, 54 per cent have allocated assets for disposal because of these risks. Lisette van Doorn, CEO, ULI Europe, explains, “We can see that transition risks have already become a significant factor in investment decision-making, adding a new layer of risk analysis to an already challenging market.”

In fact, the results show the business case for decarbonisation is clear, with 64 per cent of respondents recognising the benefits of incorporating transition risks to ‘meet future demands of investors,’ while meeting the ‘future demands of occupiers comes third’ in the rankings at 46 per cent. The ‘reality of regulation’ is also on the minds of respondents with 52 per cent now focusing on transition risks.

62 per cent of investor and manager respondents have already completed one or more acquisitions at a lower price due to a transition risk assessment. For those respondents where the transaction went ahead, the price was negotiated down due to the higher levels of capital expenditure required and a need for the asset to align with the buyer’s decarbonisation strategy.

On reviewing an existing portfolio strategy, more than 65 per cent of respondents indicated that transition risk analysis led to increased capital expenditure allocation while 44 per cent indicated this led to allocating assets for disposal.

Again, pricing was a factor with the sale being achieved at a discounted price for 46 per cent of respondents. However, for 38 per cent of respondents pricing was not affected, implying an information gap with not yet all buyer due diligence including transition risk analysis.

Lisette van Doorn suggests, “Industry headwinds from high interest rates and inflation have driven the investment market in Europe into a period of quasi stagnation. With a lack of transactions, there is a lack of clarity on how much is currently being done within the industry to incorporate transition risks into decision-making. The results of our survey indicate that many in the industry are using this time to get their houses in order, preparing for renewed market activity.” She adds, “It would be advisable for the rest to also be prepared for a different market when transaction activity picks up again – this is our call to action.”

The ULI C Change programme was established to support the industry to speed up and scale up decarbonisation of the built environment. One of its first priorities was to support investors and managers to assess and disclose transition risks as part of property valuations, and this summer it published the Transition Risk Assessment Guidelines. These support a common methodology, identifying 12 transition risks which are of material impact to real estate assets now and in the future. According to the survey, 13 per cent of respondents have started to use the ULI Guidelines and an impressive 92 per cent of respondents agreed that the guidelines would be useful to support transition risk analysis.

One of the risks identified in the Guidelines is related to carbon pricing. The survey confirmed that carbon pricing remains a minority activity for the industry with just 8 per cent of investor, manager and developer respondents working in organisations that are implementing a fee-paying carbon price, while a further 4 per cent of respondents were incorporating shadow carbon pricing.

With this in mind, ULI C Change has done an initial listening round over the summer to assess opinions on the topic and develop initial ideas how the industry might standardise the approach towards pricing, what the barriers are, and what support is needed to build the business case.

“While we’re at the beginning of this journey, the industry taking ownership of carbon emissions by collaborating at scale to co-create a solution for carbon pricing is our best opportunity to make the greatest impact on carbon emissions,” states van Doorn.

*based on a survey of 225 European real estate decision makers

For further information please contact:

Gemma Haimes, Director, Marketing & Communications, ULI Europe, [email protected]

Download the C Change Survey here.

Notes to Editors

About the Urban Land Institute

• The Urban Land Institute is a non-profit education and research institute supported by its members. Its mission is to shape the future of the built environment for transformative impact in communities worldwide. Established in 1936, the institute has over 48,000 members worldwide representing all aspects of land use and development disciplines.
• ULI has almost 5,500 members in Europe across 15 National Council country networks. For more information, please visituli.org, or follow us on Twitter, LinkedIn or Instagram.

About C Change

 C Change is a ULI-led programme to mobilise the European real estate industry to decarbonise. We’re a movement empowering everyone to work together for a sustainable future. We connect the brightest minds from across the value chain. We challenge barriers, share expertise, and champion innovation to move swiftly to accelerate solutions that will transform our industry and protect our planet. C Change means real change.

C Change was formed in late 2021 by a group of leading real estate players that was united in its aim to focus on collaboration to ensure companies large and small have access to practical solutions and education on decarbonisation.