‘Stranded asset’ risk for owners
In the race to net carbon zero, sustainability-focused real estate asset management must be front and centre of strategic planning, as companies fend off the risk of being landed with stranded assets.
With the World Green Building Council reporting that 39 per cent of global carbon emissions come from real estate, the sector has a big part to play in meeting the global target of Net Zero Emissions by 2050, to which New Zealand has committed.
Bayleys national director commercial and industrial Ryan Johnson says while most large corporations are already prioritising environmental, social and governance (ESG) issues, as the regulatory landscape evolves some of New Zealand’s long tail of smallto-medium commercial property could be at risk of becoming stranded assets.
The term refers to buildings that are deemed non-compliant with emission regulations and cannot be occupied.
A proposed change to the Building Act will make it mandatory for new and existing public, industrial and large-scale residential buildings to hold energy performance ratings. If the amendment is passed, changes are expected to be phased in from 2025.
Bayleys national director property management services Stuart Bent says the amendment could present a challenge for New Zealand’s smaller commercial building owners.
They would need to invest in effective metering systems and undergo regular assessments of building performance.
“There might be a pill to swallow in terms of getting to the position of being able to collect the data to get the energy rating, but it’s one of those things that can be seen as harder than it is.”
Any cost outlay should also be considered against the risk of ending up with a stranded asset, he says.
Discussions around embodied carbon offer better prospects for lower-grade commercial buildings, Bent says.
Embodied carbon is produced through the manufacture and transportation of new-build materials, as well as the construction process.
When those emissions are taken into account, retrofitting older commercial assets could become more viable, from an ESG perspective, than building new, he says.
“Occupiers often default to new builds, but there’s a small question mark around some of them as people talk more about embodied carbon,” he says.
Johnson says this offers a good incentive for owners to refit their assets, with B, C and D-grade buildings representing about 75 per cent of the New Zealand market.
“There is significant opportunity for those landlords and the sooner they face that, the less risk they face of obsolescence,” he says.
Bent says the other big opportunity for building owners and businesses wanting to improve carbon performance lies in reducing reliance on fossil fuels.
“We’re seeing more examples in the market of fossil fuels such as gas and diesel being replaced with allelectric systems within buildings.”