Sustainability performance and valuation: The evidence is everywhere except the appraisal

Ask a real estate professional whether they find sustainability performance material to asset valuation, and they are most likely to respond “no.” Indeed, a 2025 study of a 91-asset German office portfolio worth over EUR 3.7 billion, undertaken by the University of Regensburg’s IREBS institute, found no statistically significant relationship between an asset’s carbon intensity, or Carbon Risk Real Estate Monitor (CRREM) misalignment status, and Gross Asset Value (GAV). Taken alone, this type of finding provides a reasonable basis for skepticism about whether sustainability belongs in the realm of financial impact. However, once the lens is widened beyond this single measure to the rest of an investment manager’s material factors, the position starts looking considerably different.

The same Regensburg study found that those CRREM-misaligned assets, despite their apparent lack of impact on GAV, were 3.54 times more likely to sit vacant. Sustainability performance may, therefore, affect value despite failing to register in the way value is traditionally calculated. We consider three areas where this can be observed with more clarity: financing, regulatory risk, and tenant retention. Together, they leave comparatively little room for dismissing sustainability as a “nice to have.”

Financing

CBRE’s 2025 European Lender Intentions Survey found that 71% of lenders will not lend against an asset that fails to meet their sustainability criteria, unless a credible business plan can be presented to bring it up to standard. “Sustainability criteria” include a range of metrics at varying levels of detail, but commonly require disclosure of: carbon emissions and energy data, green certifications and Energy Performance Certificate (EPC) credentials, climate risk management, EU Taxonomy alignment, and GRESB and Principles for Responsible Investment (PRI) outcomes. This reluctance is reflected in loan pricing as well. Lenders price their margins in basis points: small fractions of a percent, where 100 basis points equals 1%. In the same survey, 22% of lenders said they apply a margin increase to assets that fall short of their sustainability criteria, most commonly 10–20 basis points, while 31% offer a margin stepdown to assets that meet the bar, most often 5–10 basis points.

Those fractions seem negligible until applied to an actual loan. On a GBP 50 million facility, even a conservative 15-basis-point gap amounts to GBP 75,000 a year, or GBP 375,000 over a five-year term. These conversations are not a one-off at the point of borrowing either. Among lenders that require an improvement plan, the survey found that 74% monitor progress at least annually for the duration of the loan, and 62% include financial penalties for borrowers who miss agreed targets.

Regulatory risk

Regulation is, in large part, driving this financing. The Minimum Energy Efficiency Standard (MEES) regime in England and Wales is perhaps the most salient example. The government’s interim response of June 18, 2026 proposes a minimum EPC B for commercial buildings over 1,000 m² by 2031, where cost effective, and EPC C for residential lets by October 2030. The interim EPC C milestone for commercial properties in 2027 has been dropped and the EPC B target pushed back from 2030 to 2031. The delay is an acknowledgment of how difficult it would have been to meet the original proposed targets; however, it will still require substantial action and capex within the industry to meet the standard.

A 2024 study published by UCL and Nottingham Trent University, tracking rents across 6,939 UK office buildings between 2011 and 2021, found a consistent premium for the most energy-efficient stock. EPC A commanded close to 15% more in rent than the least efficient buildings, EPC B around 10% to 12%, tapering through C and D. Naturally, with buildings performing below an EPC E already unlettable in England and Wales, separate CBRE research from 2023 showed an 18% discount on total return for buildings rated F/G in the UK in 2020, against A/A+ rated assets.

While both studies concentrate on the UK market between 2011 and 2021, comparable dynamics are likely to reach the rest of Europe as similar minimum energy performance standards enter into force. The EU’s recast Energy Performance of Buildings Directive (EPBD) required national transposition by May 29, 2026, with binding targets of 16% of the worst-performing non-residential buildings renovated by 2030 and 26% by 2033. Implementation has been delayed and no member state had fully transposed the directive by the deadline. The European Commission sent letters of formal notice to all 27 member states in July 2026, opening infringement proceedings. Again, this delay does not remove the underlying obligation, nor the urgency for asset managers to evaluate the risk. If regulation indeed contributed to the UK’s 18% discount, EU markets may witness the same in time.

Tenant retention

It is here that the Regensburg finding noted earlier weighs most heavily against suggestions that sustainability performance is immaterial to value. CRREM-misaligned assets in that portfolio were 3.54 times (odds ratio) more likely to sit vacant than assets still on a Paris-aligned pathway.

Let’s simulate this into a monetary context using the reference portfolio’s average vacancy rate of 7%, and the same GBP 50 million commercial property example. Assuming the two sites have an average 4% yield, amounting to a gross achievable income of GBP 2,000,000 per year:

This is a GBP 280,000 difference in rent collected in one year.

Beyond regulation and investor expectation, the human experience also becomes fundamental to decision-making. Sites with worse sustainability credentials may be poorly insulated, have insufficient natural light, or suffer poor air quality due to outdated heating, ventilation, and air conditioning (HVAC) systems, which all affect occupant wellbeing. In deciding a building’s worthiness, tenants will often vote with their feet without waiting for a property valuer’s opinion.

Concluding remarks

Lender willingness, regulatory penalties, and tenant retention clearly contribute to asset value. Taken together with the Regensburg paper, the implication is that current valuation methods fail to fully capture evolving market demand. A valuation figure that has not yet absorbed transition risk ought to be treated with some caution, since it may represent a blind spot rather than reassurance.

Closing that gap is, in practice, the kind of work our own client engagements have involved at Longevity. One European investment manager’s engagement in EU Taxonomy alignment, backed by an independently verified climate risk assessment, strengthened their mid-sized logistics portfolio’s positioning with sustainability-focused investors and lenders. A separate pan-European asset manager commissioned an asset-by-asset roadmap to EPC B compliance well ahead of potential MEES and EPBD timelines. The roadmap’s aim is to prioritize capital expenditure strategically to avoid the cost of reactive upgrades, and to demonstrate a credible decarbonization trajectory to its investors and lenders. In neither case is this yet reflected in the valuation; both nonetheless strengthen the manager’s position with lenders, tenants, and regulators, who are already asking these questions.

The metrics that recur across all three areas (carbon and energy intensity, building certifications, and alignment with decarbonization pathways) are precisely the kind of standardized, validated performance data that GRESB turns into decision-grade intelligence for investors and managers, through the GRESB Real Estate Assessment and its asset-level benchmarking against CRREM pathways. This data is likely to be what eventually closes the valuation gap described above. Data ought not, then, to be regarded merely as a reporting obligation attached to sustainability performance, but rather as a key component of risk management itself, especially until valuation practices catch up to reality.

Industry data and surveys

• CBRE. European Lender Intentions Survey 2025. June 2025. mediaassets.cbre.com. Accessed September 21, 2026.
• CBRE. The Value of Sustainable Building Features. May 2023. mediaassets.cbre.com. Accessed September 21, 2026.

UK regulation (MEES)

• Department for Energy Security and Net Zero. “Minimum Energy Efficiency Standards (MEES) in the Non-Domestic Private Rented Sector: Interim Response.” GOV.UK. June 18, 2026. gov.uk. Accessed September 21, 2026.
• Jones Day. “EPC C by 2030: What Real Estate Investors Need to Know About the UK’s New Minimum Energy Efficiency Standards.” March 24, 2026. jonesday.com. Accessed September 21, 2026.
• Vail Williams. “MEES Regulations Update: Government Extends EPC B Rating Deadline for Non-Domestic Properties.” 2026. vailwilliams.com. Accessed September 21, 2026.

EU regulation (EPBD)

• EUBAC. “EPBD Transposition: The Commission Launches Infringement Procedures Against the 27 Member States.” July 2026. eubac.org. Accessed September 21, 2026.
• European Commission, Directorate-General for Energy. “The Commission Calls on EU Countries to Transpose the Reinforced Rules on the Energy Performance of Buildings.” July 15, 2026. energy.ec.europa.eu. Accessed September 21, 2026.
• McCann FitzGerald. “Legal Regulation of Energy Performance of Buildings.” May 10, 2024. mccannfitzgerald.com. Accessed September 21, 2026.

Academic research

• Wein, J., et al. “Valuing Transition Risk: The Impact of Carbon Intensity on Gross Asset Values.” Journal of Sustainable Real Estate 17, no. 1 (2025): 2580052. doi.org/10.1080/19498276.2025.2580052
• Ke, Q., and M. White. “Does Energy Performance Rating Affect Office Rents? A Study of the UK Office Market.” Journal of Sustainable Real Estate 16, no. 1 (2024): 2356715. doi.org/10.1080/19498276.2024.2356715

This article was written by Kanon Tsuda, Principal Consultant, Head of Reporting, Data Management, and Social Impact, at Longevity Partners. Learn more about Longevity Partners here.