Real estate investors, already struggling with high interest rates, are now confronting the potential for substantial losses prompted by recent European regulations.
According to legal experts advising the industry, property owners throughout the region will be required to allocate substantial funds for renovations to ensure compliance with regulations to reduce carbon dioxide emissions and curb excessive energy consumption in buildings.
The situation “is causing huge problems,” said Rory Bennett, a managing associate at the real estate practice of Linklaters in London. Portfolios containing energy-inefficient buildings face “the task of expending a huge amount of capital to bring that up to scratch, together with refinancing or redeveloping at the highest interest rates we’ve seen in decades.”
This month, legislators in the European Union approved the Energy Performance of Buildings Directive. While implementation will occur gradually over a decade, property owners who fall significantly behind risk being burdened with assets that may become unsellable or unrentable.
The directive aims to compel property owners to undertake extensive renovations to enhance the environmental sustainability of buildings throughout Europe, thereby ensuring the bloc fulfils its commitments under the Paris Agreement.Â
Also read: EU Parliament passes law to make buildings energy-efficientÂ
Presently, renovations in the region only result in a 1% reduction in annual energy consumption, as reported by the European Commission. To meet its climate objectives, the EU asserts that property owners must increase yearly spending on renovations by €275 billion ($300 billion).
