The industry execution gap
The investment case for energy performance is becoming increasingly difficult to ignore. But recognising the opportunity and capturing it are two separate things.
The technologies are largely known and the business case is increasingly understood. Yet the annual EU energy renovation rate remains very low relative to the scale of the energy efficiency needs.
Stranded asset risk is rising
50%
of senior European real estate managers expect 20-40% of their portfolios to become stranded by 20272.
Awareness exceeds action
~1%
Annual energy renovation rate in Europe1.
Five recurring execution barriers
Industry studies, peer discussions and our own experience point to five recurring barriers.
1. Data gaps
Reliable, portfolio-wide energy data is often missing, making it difficult to identify and prioritise opportunities. Even when data exists, it is not easily shared for example between tenants and asset owners. There are also differences in definitions, and common benchmarks are lacking3. Initiatives such as CRREM are addressing the benchmark issue, and proptech companies are making it easier to collect data, but progress takes time4.
2. Lack of industry-wide standards
There is no standardised approach to include energy performance in real estate underwriting and valuations. Sustainability implies actions that seek to protect value into the future. This is in contrast to valuation on a market value basis, which reflects value at a particular date, based on observable market data5. Additional challenges are how to separate energy capex from other upgrades and assumptions about yield movements. Work is underway by industry organisations to develop a more consistent approach for evaluating the impact of energy capex on value6.
3. Split incentives
In many lease structures, owners fund improvements while tenants receive much of the benefit through lower energy costs. This is a real challenge and is very common in commercial segments such as office, logistics and light industrial. It is also an issue in residential across several markets7.
4. Regulatory uncertainty
Legislation continues to evolve, creating uncertainty around new requirements and timing. Delays in implementation of new rules and divergent requirements across jurisdictions make it difficult for market actors to understand the implications for investment decisions. For example, in several markets the national rules to implement the European Energy Performance of Buildings Directive, adopted in 2023, are not yet in place8.
5. Capability constraints
Successful energy investing requires expertise across investment, asset management, operations and engineering. It also needs operational capabilities to operate, upgrade and reposition assets efficiently. Few organisations have fully integrated these capabilities in-house. Often expertise and mandates lie with different actors in the value chain, making it difficult to develop operational excellence. This is especially the case for large real estate allocators investing in vehicles with multiple local asset managers9.
The result? Many commercially attractive opportunities remain undiscovered or unexecuted. The ambition is there, but relatively few organisations have built the capability to execute at scale. The real estate industry suffers from an execution gap.
Notes:
1 Eurostat energy balances and EEA Greenhouse Gas Inventory; Energy Performance of Buildings Directive.
2 Deepki (2024), "European commercial real estate faces stranded asset time bomb".
3 LOTUF and Systemiq (2024), "Seeing is believing: Unlocking the low-carbon real estate market".
4 CRREM (2026), "Energy use intensity pathways: Where we are and what's coming".
5 RICS (2026), "RICS Professional standard: ESG and sustainability in commercial property valuation", 4th edition.
6 INREV (2025), "First step towards a numbers-driven approach to ESG valuation" and "Integrating environmental considerations in real estate underwriting: Assessing impacts on value and returns"; ULI Europe (2026), "New open-source tool to help real estate investors quantify the financial risks of falling behind in the climate transition".
7 European Commission (2026), March infringements package: key decisions on energy, announcing infringement procedures to 19 Member States for failing to draw up National Building Renovation Plans under the EPBD.
8 Urban Land Institute (2022), Addressing the Landlord/Tenant Split Incentive to Drive Building Decarbonization; European Commission’s Joint Research Centre Technical Reports (2017), “Overcoming the split incentive barrier in the building sector”.
9 Sustainable Real Estate Forum and RICS (2026), "Paradigm shift in real estate : From reactive reporting to proactive value creation"; "Silent capital, loud consequences: Why rebalancing LP–GP–Asset Manager interaction is now a strategic imperative in real estate".