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ULI warns of 'carbon bubble' in property values

The Urban Land Institute (ULI) warns of a 'carbon bubble' in the pricing of European real estate and urges the sector to work together to preserve the value of real estate while meeting the targets of reducing CO2 emissions set by the Paris Agreement. To support a collaborative approach, ULI published a so-called Transition Risk Assessment Consultation Guidelines at the ULI C Change Summit on 12 October. This is part of its C Change programme. These guidelines describe a standardised methodology for assessing the cost of decarbonising buildings and disclosing between owners, investors, potential buyers and valuers the key transition risks and the impact on values.

ULI argues that the cost of doing nothing - given the current lack of regulations that encourage change - is not currently factored into property valuations. As a result, current building values are too high, resulting in the carbon bubble. If owners do not factor in transition costs now, the sector could face a major crisis if the bubble bursts due to a regulatory change or economic shock, causing values to fall rapidly. And this could happen sooner rather than later, given the current energy crisis, which could significantly affect tenants' rent affordability.

Lisette van Doorn, CEO of ULI Europe says: 'All buildings have transition risks and we know that some leading market players have started to consider and act on the costs of decarbonisation. However, we need to bring the wider industry on board and spread the knowledge to accelerate the process and prevent the bubble from bursting. We need to get the whole industry moving faster by making a strong case for a collaborative approach to transform the existing stock.'

A key component of ULI's proposed approach is the Carbon Risk Real Estate Monitor (CRREM), supported by Blue Module.

Download ULI's Transition Risk Assessment, Guidelines for Consultation here