In the ever-evolving landscape of real estate and physical asset management, the concept of stranded assets has become a pressing concern with significant implications for investors, developers, and communities alike. But what exactly are stranded assets, and why do they matter? Let's delve deeper into this critical issue by taking a look back at the recent Banimmo and PropTech event where Nora Van Cauwenbergh gave an insightful talk on Stranded Assets.
Stranded Assets
Stranded assets refer to properties that have unexpectedly lost value or become liabilities, often due to shifting market dynamics or regulatory changes. For example, consider a commercial building that was once highly desirable due to its central location in a bustling city centre. However, with the rise of remote work and changes in consumer behaviour, demand for office space in urban areas has declined. As a result, the value of this building may plummet, leaving its owners with few options for recouping their investment. While this phenomenon is not new, recent developments related to climate change have turbocharged the risk for stranding and brought the issue to the forefront of discussions in the real estate sector and physical assets managers more broadly. New challenges arise from environmental shifts, technological advancements, regulatory changes, and evolving social norms, all of which can lead to asset devaluation or non-performance, rendering them 'stranded'. Real estate assets, including offices, residential buildings, and infrastructure, are susceptible to changes in costs, regulations, and consumer demand for better environmental performance.
But there is more. Recent research has highlighted the scale of climate-related physical risk exposure and potential impact on asset values. Studies have shown that a significant portion of assets worldwide face moderate to high risks from heat, flood, and wind by 2050. Moreover, the overvaluation of properties, particularly in flood-prone areas, poses significant financial risks to investors and asset owners.
Due to this, properties located in flood-prone areas or regions vulnerable to extreme weather events face the risk of becoming stranded assets. As the frequency and severity of climate-related disasters increase, these properties may become uninsurable or too costly to maintain, leading to diminished value and potential abandonment.
The Challenge
Climate-driven stranding encompasses both physical and transition risks. Physical risks, such as flood exposure, pose immediate threats to property values and occupant safety. Transition risks, including regulatory changes and shifts in consumer preferences, can also contribute to asset devaluation. It's essential to consider these factors comprehensively when evaluating investment opportunities.
For instance, studies have shown that by 2050, over 60% of assets in the European Union and the United States are expected to be at risk from heat, flood, and wind events. Additionally, the overvaluation of properties, particularly in flood-prone regions, poses significant financial risks to investors and asset owners. In the United States alone, the residential real estate market is overvalued by billions of dollars due to its exposure to flood risk.
Moreover, these estimations often consider more moderate climate change scenarios. However, recent climate modeling suggests that more intense climate change is possible, further exacerbating the risks associated with stranded assets. This heightened risk extends beyond economic considerations and poses significant societal challenges, particularly for vulnerable groups who are disproportionately affected by climate-related disasters.
In light with this, regulators have a vital role to play in supporting the transition towards sustainable real estate practices. Initiatives such as the EU Taxonomy mandate reporting on environmental impact, are driving companies to adopt more sustainable approaches to development and management. Local governments also play a pivotal role in incentivizing innovation and fostering collaboration to address climate and biodiversity risks effectively.
BitaGreen's Innovative Approach
Moreover, technology plays a crucial role in understanding and mitigating the risks associated with stranded assets. Advanced sensors, data analysis, and remote sensing capabilities offer valuable insights into climate-related risks and building performance. By leveraging these tools, stakeholders can make informed decisions to safeguard assets and enhance their resilience to future risks.
At BitaGreen, we recognize the importance of addressing stranded assets and mitigating the risks associated with climate change and environmental degradation. Our innovative tools offer a science-based, universal approach to assessing the climate and environmental impact of assets at both the individual and portfolio levels. By incorporating EU Taxonomy and ESG reporting standards, our platform provides valuable insights for investors, developers, and asset managers, enabling them to make informed decisions and proactively manage risks.
With our user-friendly platform and EU-wide approach, BitaGreen offers unparalleled convenience and efficiency in assessing alignment with EU taxonomy and ESG requirements. Our easy-to-use interface allows users to input location data and building characteristics, generating detailed assessments of all EU taxonomy parameters in visual, graphical, and tabular formats. This streamlined process saves time and resources while ensuring compliance with regulatory standards.
Conclusion
As the real estate sector grapples with the challenges of stranded assets, proactive measures are essential to mitigate risks and safeguard investments. By embracing sustainable practices, leveraging technology, and collaborating with regulators and stakeholders, we can navigate the complexities of the current landscape and build a more resilient and environmentally conscious future for all.
Stay tuned to BitaGreen for more insights and solutions to address the challenges of stranded assets and promote sustainable development in the real estate sector. Together, we can create a brighter future for generations to come.
Sources:
Assessment of risk category of 1000 EU and USA assets by Cervest
Research paper in Nature discussing "Unpriced climate risks and the potential consequence of overvaluing the US property market".
Assessment of climate models and potential underestimation of climate impact by University of Exeter. The emperor’s new climate scenarios
Definition of stranded assets by GRESB 2017
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